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EU crisis won't force SA policy change

Johannesburg - South Africa has no need for additional policy changes to deal with the impact of the eurozone debt crisis on its economy, Finance Minister Pravin Gordhan said in written response to questions in parliament dated November 14.

In his reply, released on Monday, Gordhan said there were “considerable risks” to the domestic economy and South Africa would maintain an accommodative fiscal stance and reduce the budget deficit at a slower pace than previously anticipated.

“At this point we do not see a need for additional policy changes, but we will closely monitor global developments in our preparations for the 2012 budget to assess their impact on the economy,” he said.

South African leaders have been worried about the worsening debt crisis in the eurozone, its biggest trading partner, and the impact on the local economy. Gordhan in October cut this year’s growth expectation to 3.1% from 3.4%.

In its medium-term budget policy outlook, the National Treasury said the 2011/12 budget deficit would be 5.5% of gross domestic product (GDP), wider than previous forecasts of 5.3%.

Its three-year fiscal framework releases last month showed the Treasury reducing the fiscal shortfall to 4.5% of GDP by 2013/14, compared to February forecasts of 3.8%.

Gordhan reiterated the government would increase its investment spending to counter the effects of a sluggish global economy.

“Over the medium-term expenditure framework, government will focus support towards infrastructure investment, job creation, social development priorities and an economic support and competitiveness package.”

Some of the short-term tolls to manage the fallout included a flexible funding strategy to manage a sharp increase in bond yields or a sudden drying up of capital.

He said: “Continued exchange control liberalisation will encourage greater two-way demand for the currency, which should mitigate rand volatility to some extent.”

The rand hit two-and-a-half year lows of R8.61 against the dollar last week as investors dumped high risk assets due to the deepening eurozone debt crisis.

It recovered on Monday and was last trading at R8.39 against the dollar.

South Africa last month relaxed exchange controls further to allow companies to invest more overseas.

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