South Africa cuts growth forecast, calls for political stability

CAPE TOWN (Capital Markets in Africa) – South Africa’s Treasury on Wednesday slashed this year’s growth forecast and predicted a wider budget deficit for the 2016/17 fiscal year, warning that it would have to cut spending to avoid credit rating downgrades.

Speaking to reporters before presenting his budget speech to parliament, Finance Minister Pravin Gordhan, who is facing fraud charges, stressed the need to bring an end to “political noise” in the country and get the economy back on track.

“What we are talking about is surviving the next two years or so. Tighten what whatever needs to be tightened, do whatever needs to be done on the one hand,” Gordhan told journalists.

“And on the other hand, work like hell to build consensus, to build a common purpose, to get the noise out of the system and create political stability that everyone requires.”

Gordhan – who has denied any wrongdoing – declined to answer any further questions on the case against him, which the Treasury, opposition parties and business leaders say is politically motivated. The state prosecutor has rejected claims of any political interference in the decision to charge Gordhan.

The saga has rattled investors and raised the threat of credit rating downgrades as Africa’s most industrialized country struggles to grow after a 2009 recession.

In its medium term budget policy statement, the Treasury said the economy would grow by 0.5 percent in 2016, down from an estimate of 0.9 percent in February.

The Treasury predicted a wider budget deficit for the current 2016/17 fiscal year, saying declining economic growth had cut tax revenue estimates.

It said government efforts to reduce borrowing had been frustrated by consistent downwards adjustments to growth forecasts and tax revenue, as household consumption and private sector investment fell.

“In the current environment, building confidence and ensuring a sustainable outlook for the public finances require additional fiscal consolidation, in other words, steps to contain the budget deficit and slow the pace of debt accumulation,” it said.

The state prosecutor has said that Gordhan, in his previous role as head of the revenue service, cost the tax agency about 1.1 million rand by approving early retirement for a deputy commissioner in 2010 and re-hiring him as a consultant.

Gordhan, who received a standing ovation from members of the assembly as he rose to read the budget speech, is seen by edgy financial markets see as a guarantor of stability. Support for the minister also reflects approval of Treasury’s commitment to rein in spending and cut debt.

Source: Reuters Africa News