The South African government’s expansionary Budget policy for the next four years would not have an inflationary impact on the economy, according to South African Reserve Bank (SARB) Governor Tito Mboweni.
Addressing journalists prior to the announcement of the government’s medium-term Budget framework, known as the medium-term Budget policy statement (MTBPS) in Parliament on Wednesday, Mboweni said that he was confident there would be no “fiscal dominance” arising out of the higher budget deficits projected through 2006-07.
The MTBPS contains substantial upward revisions to the government’s estimates for its Budget deficits in the current and coming years, with the 2003-04 deficit moved up to 2,6% of GDP from 2,4% of GDP as forecast in February. More importantly, the 2004-05 deficit is projected at 3,2% of GDP compared with 2,4% previously, and the Budget shortfall for 2005-06 is estimated at 3,1% of GPD, up from 2,3%, before falling to 2,8% of GDP in 2006-07.
Much of this is due to rising spending on infrastructure and social programmes for the poor, including the Expanded Public Works Programme as outlined by President Thabo Mbeki on Tuesday in the National Council of Provinces.
“The SARB has no problem with the projections of the Treasury,” he told journalists. “The deficit projections are fairly reasonable given the slowdown in economic activity and the decreasing inflation environment that will pose more challenges for revenue collection.
“We use the Budget information in our own analyses and it had been clear for some time that this pattern would emerge.” — I-Net Bridge