South Africa will continue to pursue fiscal policies that have helped grow the economy, and the government will support state-owned firms’ investment programmes, Finance Minister Pravin Gordhan said on Tuesday.
Although South Africa fell into recession in the first quarter of this year, joining other world economies, the government says prudent past policies have seen the country fare better than others in the prevailing global downturn.
”In response to the global economic crisis we will continue to pursue counter-cyclical fiscal policies to support growth to ensure employment creation,” Gordhan said in a presentation to Parliament’s finance committee.
”We will continue to support the investment programmes for state-owned enterprises through guarantees and direct support to these entities,” he added.
The World Bank said on Monday South Africa’s economy should contract by 1,5% in 2009, hit by waning demand especially for commodities, before recovering to a 2,6% expansion in 2010 and 4,1% the year after.
In its February budget statement, the government forecast GDP growth of 1,2% this year, after averaging 5% between 2003 and 2007, but the Treasury says this year’s forecast will likely be revised downwards in the October budget statement.
The government has responded to slowing growth by lifting spending and swinging the budget back into deficit, but has said it will manage its borrowing carefully to avoid overburdening the country with debt.
”After seven years of growing budgets and lots of money being available as a result of good policies on the one hand and good collection from the revenue service, there is a degree of what one might call fiscal looseness in our system,” Gordhan said. ”Now is the time to tighten up that looseness.”
He added that inflation was ”proving to be more stubborn than anticipated”.
Consumer inflation has been on a downward trend since peaking at more than 13% last year, but the rate of decline has been slower than previously forecast, and at 8,4% year-on-year it remains above the top end of a 3% to 6% target band.
‘We need to hear different voices’
Meanwhile’ Gordhan said that South African Reserve Bank Governor Tito Mboweni enjoys the full support of the government and welcomed debate on inflation targeting.
”The governor certainly has our fullest support,” Gordhan said in response to questions in Parliament’s finance committee.
Mboweni has been criticised by trade union allies of the African National Congress for what they say is overly tight monetary policy, and the Congress of South African Trade Unions (Cosatu) has said it does not support Mboweni being offered a third five-year term after August.
Cosatu also wants inflation targeting scrapped.
”There’s a lovely discourse going on and we welcome that … we need to hear different voices whilst we give certainty that policy remains,” Gordhan said. — Reuters