Barry Streek
Analysts are expecting lower economic growth projections and continued caution over public spending when Minister of Finance Trevor Manuel presents his medium-term budget policy statement next week.
The statement, an assessment of government spending during the current financial year and a three-year spending projection, will be presented on Tuesday.
Former senior Department of Finance official Andre Roux, now with Investec Asset Management, says he expects the government revenue to be between R6-billion and R8-billion higher than budgeted, and the budget deficit to be 1,8% of the gross domestic product (GDP) lower than the 2,5% predicted in the budget.
However, Roux expects the treasury to be “cautious” about any pressures for more expansionary spending. He does not expect any significant increase in social expenditure or that the deficit will be cranked up for this purpose.
The Economic Policy Research Institute’s Michael Simpson, who, like Roux, was speaking at a series of Institute for Democracy in South Africa lectures on the budget policy statement, believes it will show weaker economic growth and downgrade projected growth from 2,5% to between 2% and 2,5%. Roux believes it will be in the region of 2,2%.
Simpson said there might be a further weakening of the rand over the medium term in the face of global recession, but this might be offset by global competition.
He also predicted inflation would be in line with budget targets and might even fall more rapidly in the face of slow growth. He said that in the medium term, formal sector job losses and the informalisation of labour markets would continue.
Professor Ismail Adams of the University of the Western Cape said signs of a weakening economy are the decline in GDP growth of 6% in 1980 to less than 2% in 1999, while gross domestic fixed investment as a percentage of GDP declined from 26,2% in 1980 to 17,3% in 1998.
Domestic savings have declined, unemployment is increasing and income distribution is one of the most distorted ever measured.
On the upside, Adams said, was a sharp fall in inflation from 15% in 1980 to 7,69% in 1998, a declining budget deficit and the improved competitiveness of South African industry, which now ranks among the top 25% of countries in the world.
Exchange control regulations have been gradually phased out, the country’s tax administration has improved, a massive reprioritisation of state expenditure into social capital development has taken place, and business confidence was growing, Adams said.
Roux said that for business the most important aspect of the budget policy statement is the announcement of the new inflation target for 2003. There is always interest in the adjustments budget, but not much is expected from it.