Medium Term Budget – SA must not be too optimistic

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The Minister of Finance Pravin Gordhan will table the Medium Term Budget Policy Statement in Parliament at 2pm on October 25, 2011. Analysts say that government could face a tough test to raise funds on capital markets. This comes as government bonds rose to their highest level in more than a week on Tuesday after a weekly auction ahead of a mini-budget speech next week in which more issuance is expected to be announced.

The weak auction results saw continued selling, as investors shy away from long duration bonds before the budget speech. The Finance Ministry will announce any changes to debt issuance for the 2011/12 financial year in its midterm budget statement next week. Liquidity continues to weigh on the market as investors stay away until solutions are found to the euro zone debt crisis.

SA’s growth ambitions too ambitious

‎South Africa’s projections of about 4% growth over the next three years are too ambitious in the current global turmoil, and the 7% growth it needs to create jobs might not be possible at the moment, Gordhan said.

Speaking at a business dinner last week, Gordhan said weakening growth in developed markets and escalating market volatility have cast a shadow over South Africa’s economic outlook, and that the world faced uncertainties for the next three to four years. The government has said the economy needs to grow by 7% a year on a sustained basis to decrease the unemployment rate, which is currently at over 25%.

“At the moment, however, 7% might not be possible for South Africa. Our growth projections at the time of the budget and before the current market turmoil were for the economy to grow by about 4% per year for the next three years,” Gordhan said. “Clearly that’s far too ambitious in the current context unless we do something spectacular for ourselves.”

Economic growth in South Africa slowed to 1.3% in the second quarter of 2011. In February, at the time of the budget, the Treasury had forecast growth of 3.4% in 2011, 4.1% in 2012 and 4.4% in 2013.

Current market turmoil, begun by Greece’s debt problems and exacerbated by a US credit downgrade in August, was also likely to affect South Africa’s borrowing in the international market.

“The turmoil may also impact international funding conditions which are important to South Africa given that we intend to borrow almost R450 billion to fund our fiscal deficit over the medium term,” Gordhan said.

Economic growth in South Africa slowed to 1.3% in the second quarter of 2011

SA in for tough times

The International Monetary Fund (IMF) says if global economic growth slows, South Africa will be particularly hard-hit. The IMF has predicted 5.25% economic growth in Sub-Saharan Africa this year. But given the pressures seen in the likes of the United States job-market and the Euro-zone debt crisis, South Africa finds itself doing a fine balancing act.

Pan-African Capital Holdings economist Iraj Abedian says South Africa’s tourism sector is greatly affected when global economies under perform.

“Expected growth in the UK is now half to what it was nearly two months ago. So that type of reduction in the growth, which means they have less income to spend so they buy less. One of the other areas that we are particularly dependent on in the global economy is in our tourism sector. If growth in those regions decline as it’s been declining- they’ll have fewer tourists and if they do come they’ll spend less.”

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– By SABC/Reuters