/ 5 June 2009

Tax revenues to fall, says Gordhan

South Africa, grappling with its first recession in 17 years, expects tax revenues to decline while higher costs will limit borrowing from capital markets, Finance Minister Pravin Gordhan said on Friday.

But Gordhan reiterated in a speech to Parliament that prudent past policies would see Africa’s biggest economy fare better than other countries in the prevailing global downturn.

South Africa’s economy shrank by an annualised 6,4% in the first quarter of this year, after contracting by 1,8% in the fourth quarter of 2008, falling into its first recession since 1992 as depressed demand hit mining and manufacturing output.

”Like the rest of the world, South Africa has not escaped the effects of the global recession. The immediate implication for fiscal policy in South Africa is that … tax revenues, after adjusting for inflation, are expected to decline,” Gordhan said.

This would impose limitations on spending, while the government’s ability to borrow from capital markets was restrained by higher borrowing costs.

In his first State of the Nation address on Wednesday, President Jacob Zuma said South Africa must act to minimise the impact of the global financial crisis on the poor, but should still spend wisely.

Zuma is under increasing pressure from the ANC’s labour union allies to increase spending, but is also keen to reassure investors that his government will not sway from existing prudent economic policies.

Gordhan, who was appointed in May, replacing respected long-serving former finance minister Trevor Manuel, said South Africa’s fiscal position remained strong, public debt was moderate and the central bank’s foreign reserve position was healthy.

”These strengths mean that we are able to continue with the expanding infrastructure investment programme announced in recent budgets,” he said.

The National Treasury would establish a unit to monitor and investigate corruption in public procurement processes, and to deal with all forms of leakages from the state, Gordhan said. — Reuters