Cape Town - South African Finance Minister Pravin Gordhan may be forced to stick to budget targets in the face of credit downgrade threats and pressure on tax revenue, providing little support to the ruling party to woo voters before May 7 elections.
Gordhan is scheduled to deliver his fifth budget speech in Parliament at 2 pm in Cape Town.
He will probably cut his 2014 growth forecast to 2.6 percent from 3 percent predicted in October and keep the fiscal deficit target of 4.1 percent of gross domestic product for the year through March 2015, according to the median estimate of 25 economists surveyed by Bloomberg.
“The focal point of this budget is to maintain fiscal stability,” Arthur Kamp, an economist at Sanlam Investment Management, told reporters in Cape Town yesterday.
“The budget isn’t going to make a significant contribution to growth any more. I don’t think we are going to have expenditure increases because there is an election.”
The African National Congress may face its toughest election since taking power in the first multiracial vote two decades ago, as disenchantment mounts over a 24 percent unemployment rate and a lack of housing and decent sanitation.
A survey of 3,564 adults interviewed by research company Ipsos in October and November showed support for the party, which controls two-thirds of the seats in Parliament, plunged by 10 percentage points to 53 percent from a year earlier.
Gordhan, 64, has limited scope to pacify the electorate by boosting spending, as sluggish global growth damps demand for South African exports and a series of mining strikes curbs corporate-tax revenue.
He will probably be reluctant to borrow more, given that Standard & Poor’s and Moody’s Investors Service have a negative outlook on the nation’s credit rating.
The companies, along with Fitch Ratings, all downgraded the nation’s debt between September 2012 and January 2013, citing concerns over slower growth and rising debt.
While annualised expansion of 3.8 percent in the fourth quarter beat analyst estimates, growth of 1.9 percent in Africa’s biggest economy last year was the slowest since the recession in 2009, according to data from the statistics agency released yesterday.
The government’s National Development Plan, which seeks to create 11 million new jobs by 2030, targets 5.4 percent annual growth.
“There really isn’t much room for Gordhan to maneuver,” Adenaan Hardien, chief economist at Cape Town-based Cadiz Asset Management, said by phone yesterday.
“On the expenditure side, he will continue to try and rein things in because he needs to try and maintain the current credit rating. On the tax side, he’s not likely to come up with anything radical” given that an review of the tax system is under way, he said.
The rand gained 0.6 percent to 10.7276 per dollar by 6 p.m. in Johannesburg yesterday, trimming the decline against the dollar this year to 2.2 percent.
The yield on government rand bonds due in December 2026 climbed 27 basis points, or 0.27 percentage point, this year to 8.52 percent.
The South African Chamber of Commerce and Industry, the country’s largest business organisation, urged Gordhan to reassure investors that the economy is being well managed, take a firm stand on reducing the budget deficit, address unrest in the mining industry and step up the fight against graft.
Gordhan needs to “resist popular pressure to increase social spending,” Neren Rau, the grouping’s chief executive officer, said in e-mailed comments on February 21.
“SACCI would like to a see a balance between spending on social priorities and on productive assets that support sustainable economic growth.” - Bloomberg News