Opposition parties on Tuesday had mixed reactions to Finance Minister Trevor Manuel’s Medium-Term Budget Policy Statement.
The Democratic Alliance (DA) praised the minister for his consistency amid economic turmoil, but the United Democratic Movement (UDM) expressed concern at the minister’s failure to present concrete plans on job creation and crime prevention.
“The UDM would have liked to see a clear budgetary commitment to stimulating the economy, with a view to job creation, as well as cash injections for the fight against crime and to improve the salaries and work conditions of teachers,” UDM finance spokesperson Jackson Bici said.
However, DA finance spokesperson Kobus Marais said the party was impressed by the priorities outlined by Manuel.
“The DA identifies strongly with the top priorities outlined … by Manuel, especially measures aimed at growing the economy and job creation; reducing crime; [and] improving the quality of essential services such as education and healthcare,” he said.
While the DA also welcomed Manuel’s R1,4-billion allocation to Fifa 2010 World Cup projects, it was concerned about a lack of political accountability on the projects.
“This has traditionally been the responsibility of former deputy finance minister Jabu Moleketi, who has yet to be replaced. There needs to be politically accountable leadership of 2010 expenditure to ensure that we can provide the best and most successful Soccer World Cup possible,” Marais said.
Manuel’s budget statement says that R1,4-billion has been set aside to cover cost overruns for 2010 Soccer World Cup stadiums. It also says that R600-million will be spent on internet connectivity between the stadiums and the national backbone network.
The Inkatha Freedom Party said while it welcomed the increase in social grants, it was disappointed that the increase was only R20.
“We believe that the R20-per-month increase in social grants, as announced by Minister Manuel today, is far from satisfactory,” IFP finance spokesperson on finance Narend Singh said in a statement.
However, Singh said the party was impressed by increases for school nutrition as well as the hospital-revitalisation programme.
An additional R728-million has been recommended in the statement for the hospital-revitalisation programme to compensate for the effects of inflation and to ensure that hospitals are appropriately equipped and modernised.
Avoiding the contagion
The financial storm has arrived and is fiercer than anyone could have imagined, said Manuel.
However, he said, South Africa will ride out the storm due to the pre-emptive action it has already taken.
“The thunder will pass,” said Manuel.
“We saw the signs early and we took appropriate action. We can say to our people: our finances are in order, our banks are sound, our investment plans are in place, our course is firmly directed at our long-term growth and development challenges, and we will ride out this storm, on the strength of a vision and a plan of action we share.”
He noted that the government took the “tough decisions” early.
“Yet there is no avoiding the coming storm,” he added, saying that global economic growth will slow “for several years”, South Africa’s export earnings will be negatively affected and it will be more difficult to finance the country’s investment needs.
The Treasury says in the budget statement that tough economic decisions taken early on are bearing fruit in the face of the world financial crisis.
“Early decisions on macroeconomic policy, banking regulation, the gradual approach to exchange-control liberalisation, the introduction of inflation targeting and our counter-cyclical approach to fiscal policy have enabled South Africa to benefit from the global environment, while providing a degree of protection from the worst effects of financial contagion,” it says.
Inflation
Manuel noted, too, that CPI — to replace CPIX inflation as the official targeted measure of inflation –will fall into the 3%-to-6% target band in the third quarter of 2009. “Moderation of inflation must remain a central policy objective,” he said.
Manuel and South African Reserve Bank Governor Tito Mboweni have agreed that the target band for headline CPI will remain unchanged at 3% to 6%.
“Inflation targeting will remain the anchor for monetary policy,” says the National Treasury in the Medium-Term Budget Policy Statement.
Some critics have called for its scrapping and others for the target to be increased to, say, 3% to 7%. However, the Treasury pours cold water on these calls and highlights the inflation target as a reason South Africa is not being knocked as badly as it could have been otherwise.
“Inflation targeting helps to manage long-term inflation expectations by providing an appropriate anchor for monetary policy,” it says.
“The flexible exchange rate, a well-capitalised and prudently regulated banking system, low external debt, deep domestic capital markets, higher foreign-exchange reserves, sustainable fiscal policy and ongoing commitment to inflation targeting provide key anchors for improved economic performance,” says the Treasury.
Among South Africa’s key economic challenges, Manuel said, the savings rate needs to be lifted and a more export-oriented economy needs to be constructed. He also wants to see a more labour-intensive growth trajectory.