SA Reduce GDP Focast To 1,4 % From 2,7%

The South African Finance Minister, Nhlanhla Nene on Monday tabled before parliament tough Medium Term Budget Policy Statement (MTBPS) which revised the economic growth focast downwards to 1, 4 percent from 2, 7 percent for the year 2014/15.

The MTBPS also came up with cuts in government expenditure. Nene said the reduction is Gross Domestic Product (GDP) from 2,7 percent to 1,4 percent was caused by internal and external environment. Minister Nene said, “We expected the economy to grow by 2.7 percent this year. The revised estimate is 1.4 percent. The Treasury projects that growth will reach 3 percent in 2017. This downward revision is partly because of a weak global environment, including the slowdown in Europe, China and other emerging economies.”

He also cited energy constraints, skills shortages, labour market disruptions and challenges facing the country’s industrial transformation as some of the reasons for the reduction in forecast. He stated that for the government’s economic blue print, the National Development Plan to achieve the desired results, there has to be a 5 percent economic growth per annum. He also stated that the economy underperformed this years and the tax revenue was down by R10 billion (about US$1 billion). He also stated that government would sell its assets to assist the power utility, Eskom. Nene said, “Eskom will borrow a total of R250 billion (US$25 billion) over the next five years, supported by existing guarantees from government. Government will provide at least R20 billion (US$2 billion) of funding, raised through the sale of non-strategic assets. This will be deficit neutral: the capitalization of Eskom will only occurrence these funds are realized. If necessary, consideration will be given to a partial equity conversion of the R60 billion (US$6 billion) loan that has already been provided.”
The government also underscored the need to improve the energy sector to speedily assist in economic recovery. The government proposed adjustments to the 2014/15 by another R157 million (US$15, 7 million) to repair infrastructure caused by natural disasters. He also proposed R32 million (US$3, 2 million) for water and sanitation. Minister Nene also proposed R326 million (US$32,6 million) for Ebola control and prevention. He also proposed, “R350 million (US$35 million) for International Relations and Cooperation to compensate for the depreciation of the Rand. The Adjustments Appropriation also includes R620 million (US$62 million) for the digital broadcast migration programme.”

The Finance Minister also revised the revenue estimates to R956 billion (US$95, 6 billion) leaving a deficit on the main budget of R180 billion (US$18 billion). He also estimated the provinces and public entities and surpluses of social security funds to be R27 billion (US$2, 7 billion). He explained, “This brings the consolidated budget deficit to R153 billion (US$15, 3 billion), or 4.1 per cent of GDP, which is in line with the February budget estimate.”

The government also wants to cut the spending by R25 billion (US$2, 5 billion) in the next two years. He also proposed strict government expenditure reduction . He proposed some withdrawal of funding for long term vacant posts. He also called for cut in government travel and catering budgets. The Finance Minister also proposed a cut in government advertisements and communications. He also called for the cut in the use of consultants by government. He added, “These steps will contribute savings of about R1.3 billion over the next two years. They supplement the cost-containment measures adopted at the start of this year, which have already achieved substantial savings.
Minister Nene also said the government expects to raise about R15 billion (US$1,5 billion) per year from 2015. He called on the South African cabinet to support his proposal in reducing the government spending./ end