Finance Minister Pravin Gordhan on Friday cut the 2010/11 budget deficit and said this year’s growth might be higher than previously forecast, suggesting further future reductions in the fiscal deficit.
Widening fiscal deficits had caused concern among some investors about the long-term debt sustainability in the economy, and saw bond yields rising after the February Budget, especially on the long end.
Gordhan said the budget gap for the year ended March 31 was 5 percent of gross domestic product (GDP), slightly lower than the initial forecast of 5.3 percent, due to higher-than-expected tax collection.
This year’s forecast budget deficit is 5.3 percent of output, narrowing to 4.8 percent in 2012/13.
The SA Revenue Service (Sars) collected R674.2 billion, slightly more than the target of R672.2bn, Gordhan said.
“The remarkable performance that Sars is reporting indicates that our economy is recovering,” Gordhan said.
Asked whether the better-than-expected revenue for 2010/11 might apply to the next fiscal year as well, he said: “There are good indications that South Africa’s economy might grow faster than we believe,” and the budget deficit could therefore be revised.
The bond market firmed after Gordhan’s announcement, with the 2015 bond yield falling to 7.775 percent from 7.82 percent and the 2026 bond’s yield down to 8.90 percent from 8.95 percent previously.
In the Budget, Gordhan said the economy was expected to grow by 3.4 percent for 2011, rising to 4.4 percent by 2013.
He said it was still unclear whether higher oil prices would undermine growth.
South Africa’s GDP forecasts are still a fraction of the 7 percent growth the government has said was needed to make a dent in unemployment, which is more than half the adult population.
A separate survey on Friday showed that although the manufacturing sector, the second biggest contributor to GDP, was on the mend, it was still struggling to create jobs.
The purchasing managers’ index (PMI) increased to a 13-month high of 57.2 in March but the employment index was below 50.
“There is normally a good relationship between the PMI reading and the manufacturing data. If the relationship holds, manufacturing activity should continue to improve in the first half of 2011,” said Stanlib economist Kevin Lings. - Business Report