Johannesburg - This week's interim budget in South Africa will stimulate economic growth but also encourage fiscal discipline, President Jacob Zuma said on Tuesday, allaying investor fears of increased government spending ahead of an election next year.
At Wednesday's interim budget, finance minister Pravin Gordhan is expected to keep a rein on spending but widen his deficit forecast for 2013/14 to 4.9 percent of GDP from the 4.6 percent seen in February, a Reuters poll of 15 economists found.
Sluggish efforts by Africa's biggest economy to bounce back from a 2009 recession have constrained revenue collection, and Gordhan has consistently had to push out the timeline for narrowing the deficit.
“South Africa is still at risk of a rating downgrade and as such needs to exert great caution in fiscal expenditure,” said Investec economist Annabel Bishop, adding that Gordhan needed to find some way of cutting costs.
Speaking at the opening of a 20 billion rand ($2 billion) expansion of a De Beers diamond mine - the biggest single diamond investment in decades - Zuma tried to reassure investors after last year's violent, wildcat mining strikes.
The strikes, which spread from the platinum sector to other mines, cost the economy billions of rand in lost revenue and were a major contributor to two sovereign ratings downgrades.
“Our message to you and the world today is that South Africa is open for business. It is open for both domestic and foreign investments,” Zuma said. “Our mining sector is poised for growth and expansion.”
Mining directly accounts for more than 8 percent of South African GDP, and twice that when indirect activity is taken into account. - Reuters