SA seen keeping budget deficit target intact

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PravinBudget2013 Reuters. South African Minister of Finance Pravin Gordhan.

Johannesburg - South African Finance Minister Pravin Gordhan is likely to stick closely to his previous spending plans and budget deficit target when he presents the government budget this week, according to a Reuters poll of economists.

The minister, who will submit the budget to parliament on Wednesday, is expected to aim to convince credit rating agencies that he is not about to loosen the purse strings ahead of South Africa's general elections on May 7.

The consensus of 17 economists polled by Reuters is for Gordhan to announce a deficit of 4.2 percent of gross domestic product for the 2014/15 year, which begins on April 1, slightly wider than the 4.1 percent target in October.

President Jacob Zuma's ANC government is under pressure to increase social spending for millions of mainly black people who are still in poverty two decades after the end of white apartheid rule.

“We do not expect (the budget) to deliver any major shocks, notwithstanding how close to the 2014 national elections it occurs,” Standard Bank said in a note.

“Government will be under pressure to deliver an 'election budget'. However, given persistent fiscal slippage, a weak growth outlook and thus diminishing fiscal flexibility, it is simultaneously subject to intense scrutiny from the major rating agencies,” the note added.

Moody's and Standard & Poor's have put South Africa on negative watch for a possible ratings downgrade in future, while Fitch confirmed its stable rating outlook in December, provided the government broadly sticks to the spending plans it laid out in October.

“There is a good chance that the deficit is actually better than this, because revenues have been doing well,” said Razia Khan, a London-based economist at Standard Chartered.

Even so, a weak rand could force Gordhan to cut growth forecasts, while pushing foreign debt servicing costs higher.

Both the finance ministry and the Reserve Bank had previously expected GDP to grow 3 percent for 2014.

The central bank in January cut that forecast to 2.8 percent, and Gordhan is expected to make a similar reduction.

The rand was trading at more than 11 per dollar as recently as last weak, although it regained some of its footing on Monday as some traders unwound long dollar positions.

The South African Reserve Bank last month joined its emerging market peers in tightening monetary policy - raising interest rates by 50 basis points to 5.5 percent to ward off inflation pressures stemming from the weaker currency.

The rate hike will hit consumers already struggling with high debt levels, resulting in less spending in an economy struggling to grow since a 2009 recession. - Reuters


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