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Johannesburg - The swing to the left in the ANC's 2009 election manifesto runs the risk of increasing spending without delivering the goods, said Jean François Mercier, chief economist of Citibank.
The manifesto was launched in East London on January 10 and indicates a planned increase in government spending on key areas such as unemployment, healthcare and housing.
If the ANC is elected as the majority party, the SA economy can expect a boost with the introduction of the government's stimulus package in the short term, said Mercier.
He added that the manifesto's policies will be supportive to the economy in the long term, but that there is a risk of making the spending commitment too large and thereby inducing higher budget deficits and the reduction of foreign investment.
"It's too early to make a judgment. There is no doubt that structural problems such as crime and unemployment have the right to be addressed, but the challenge is to succeed in delivering on the increase in spending," he said.
Mercier said it is reasonable to expect a 2% budget deficit, as announced by Finance Minister Trevor Manuel in October 2008 in his medium-term budgetary policy statement.
However, Jeff Gable, head of research at Absa Capital, said that the country can expect a larger deficit: "The world has changed. The economy is significantly weaker and we are showing a local strain that is bound to reflect in our budget."
Gable added that the probability of the ANC manifesto being included in the budget announcement on February 11 is slim, but the deficit will still be apparent.
The leftist shift in the ANC's election manifesto should come as no surprise, Mercier said.
"The government has indicated for more than a year that industry policy needs to be revived and that there needs to be cheaper access to healthcare," he said, and added the reaction of foreign investors will depend on how the money will be spent.
"Growth is always good news, but building a budget deficit is a different matter," Mercier said.
- Fin24.com