Diagnosis: stable but still critical
Gordhan says austerity is paying off
SOUTH Africa’s economic situation remains dire, but it has stabilised under stern Treasury management, Finance Minister Pravin Gordhan’s budget speech shows.
Proposed state expenditure for the new financial year will total R1.56-trillion, with debt payment interests contributing R169-billion.
Projected revenue is R1.41-trillion, and the shortfall of R149-billion, which is 3.1% of gross domestic product (GDP), will have to be borrowed.
State debt now stands at R2.2trillion, which is 50.7% of GDP.
Economic growth has been uneven. The bottom 20% of the population has benefited from social grants and better access to services while the top 20% benefited from rising demand for skills and from pay increases. But the bottom 60% was left out. In South Africa, 95% of wealth was in the hands of 10% of the population. Furthermore, 35% of the labour force was unemployed or had given up looking for work.
Despite education progress, international benchmarks show that over half of Grade 5 pupils cannot read properly in any language. More than 75% of school leavers are unemployed five years after leaving school, and economic deprivation remains concentrated in townships and rural areas.
South Africa’s growth rate has remained sluggish, compared with other economies, at 1% a year.
But Gordhan listed many factors on the upside:
● State expenditure is within the boundaries projected last year;
● It is expected that R28-billion will be raised in taxes in this year;
● The budget deficit for the coming financial year is projected to be 3.1% of GDP, which is in line with projected figures;
● Government debt is expected to stabilise at 48% of the GDP over the next three years;
● Redistribution of wealth through expenditure on education, health and municipal service delivery remains a mainstay of state spending patterns; and ● The state wage bill is stable. Internationally, the economic outlook is weak, with steady but low growth levels in Europe and the USA, India and China buoyant and Russia and Brazil recovering from recessions, and global economic growth expected to be 3.4% this year.
South Africa’s economic growth rate is expected to improve slightly to 1.3% this year, with the services sector growing the fastest, creating 120 000 new job opportunities.
But in mining and manufacturing, 80 000 jobs were lost.
Weak local business confidence levels and low growth in the country’s African trading partners contributed to sluggish growth, Gordhan said.
But growth should improve, helped by rising commodity prices and the recovery of the rand.
The severe drought has abated in most of the country, there are fewer industrial disputes culminating in strikes, and the electricity supply has improved.
All of these aspects let Treasury believe that the South African economy should grow faster this year, he concluded. — TMG