Reality-check for South African economy

By on October 27, 2014

Finance Minister Nhlanhla Nene put all the cards on the table in his budget statement in explaining the country’s bleak economic situation. With the slowest growth since the 2009 recession, Nene says finances have been put under immense pressure.

He has presented revised economic-growth and fiscal targets in an attempt to recover losses and stimulate a turnaround.

The government has been reluctant to release shares and investments, but it may prove necessary after-all. Although Nene could not divulge on details, it has been forecast that the state investment of 13.9 percent (roughly R27-billion) in Vodacom will be sold. The sale of non-core assets will allow finances to be focused towards infrastructure expansion and other areas of fiscal short-fall.

“There are areas where government is not supposed to be,” explained Nene, “and if there are areas where government is not supposed to be, we should not shy away from the fact that those assets should be disposed of.”

Despite this, he dismissed the notion that this was a move towards privatisation. It was more a case of government needing to focus on their priorities, and the private sector on theirs.

Further plans to pull South Africa out of its economic slump included using the aforementioned asset sales to patch the R225-billion funding gap at Eskom. What was also mentioned was curbing some government spending to compensate for the over-budget wage bill (almost one third of government spending), and the areas where government still has an unclosed tax gap.

Tax changes could put further strain on consumers, as the central bank battles to contain inflation and interest rates with the weaker currency – compared to 2013, Bloomberg tracked a 24 percent fall for the rand against the dollar in 2014.

The major rise in debt level is primarily due to the lack of tax revenue received, and Nene has said the country is at its limits with what it can do with debt. However, he has aligned himself with former Finance Minister Pravin Gordhan’s aims and made fiscal consolidation the overarching theme of his

budget statement.

Nene’s directive of government department spending prudency, combined with a serious look at financial management policies of South Africa, will hopefully coin economic recovery in the coming years. At the moment, steady growth is better than none at all.

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