Average South African becoming poorer: Treasury

A fall in the growth of the country’s GDP behind the rate of population growth has narrowed per capita income and hobbled the buying power of the ordinary South African.

“In other words, the average South African is becoming poorer,” the 2016 national budget read.

Lower rates of economic growth reduce government revenue, undermining the state’s ability to sustain spending on core social and economic programmes. While global factors play a strong role, Treasury outlined that growth in South Africa continues to diverge from the world average.

Government’s projected GDP growth has been revised down to 0.9% for 2016, as low commodity prices, heightened financial market volatility and diminished consumer and business confidence weigh on the country’s economic outlook.

Moreover, the most severe drought in 20 years has resulted in declining agricultural output and increased food price inflation, raising the prospect of increased hunger and poverty across southern Africa. Constrained electricity supply also continues to limit growth and deter fi xed investment.

Treasury added that deterioration in the credit rating outlook towards the end of last year was followed by changes in the finance portfolio, catching investors off-guard and raising questions around fiscal probity.

Treasury expects South Africa’s GDP growth rate to “gradually” recover over the medium-term, as electricity availability improves and confidence returns. It cautions however, that, without action to restore confidence in fiscal sustainability, the recovery risks being cut short by a “vicious” cycle of lower growth, declining incomes, rising inflation, capital outflows, further currency depreciation, rising interest rates and falling investment and consumption.

“The 2016 budget proposals are designed to avoid such an outcome.

“Some of these measures will entail short-term economic discomfort, but the alternatives are far worse,” it said.