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26 Oct 2011 07:09
South Africa’s plans to cut its budget deficit to 3.3% in 2014/15 are realistic and will be met, insists National Treasury Director General Lungisa Fuzile.
Finance Minister Pravin Gordhan released South Africa’s medium term budget policy statement on Tuesday, in which it was shown that the fiscal deficit for this year was wider than the estimate in February, but that plans were afoot to gradually cut the deficit.
The budget has swung back into deficit in the past few years, after two years of surpluses prior to the recession in 2009, as government has raised spending to offset the global economic slowdown.
“One of the most important elements on which everything hangs is growth. If our economy picks up to the levels we project here, revenue will follow and achieving a 3.3% deficit is feasible,” said Fuzile on Tuesday.
He said it could be a challenge if there were to be wage settlements much more above the 5% the government has budgeted for, “but we believe wage settlements of 5% are reasonable, so that 3.3% is defendable.”
He added that euro zone debt crisis and the slowdown in the US economy were downside risks but not “insurmountable challenges”.
The treasury cut its growth forecast for the next three years and now expected GDP growth to rise to 3.1% in 2011, compared to February’s forecast of 3.4%.
“If a sustainable solution is found (in the US and Europe) and combined with us doing the right things we need to do, in terms of reforms and infrastructure our economy should take off.”
Fuzile said the treasury would meet ratings agencies in the first half of November and was confident its budget framework was consistent with long term fiscal sustainability and there was very limited risk that would impact on credit ratings.
South Africa plans to fund its deficit using switch auctions and cash draw-downs.
He assured investors that the treasury would be careful not to put undue pressure on the long end of the curve when doing switch auctions.
“The timing and volumes (of switches) are informed by the fact that we do not want people who are holding our long term bonds to suffer.
In order to increase its coffers the treasury said it might consider selling its stake in some entities in which it was a minority shareholder but did not name any companies that could be affected.
“There are entities in which government is already a minority shareholder and the amount of its stake hardly earns it influence as far as operations of the entity are concerned,” he said adding this would be on a case by case basis.
“The question we have to ask is: Is government better-off with a small dividend or would it be a sensible long term approach to sell such non-core assets and use resources to invest in key infrastructure and enhance competitiveness of manufacturing.”—Reuters
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