Deficit reduction target at risk: Nene

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iol news pic Nhlanhla Nene Cabinet Finance GCIS Finance Minister Nhlanhla Nene

Parliament - If economic growth remained weak, the government would struggle to achieve its target of cutting the budget deficit to 2.8 percent of GDP by 2016, Finance Minister Nhlanhla Nene warned on Monday.

“If growth outcomes continue to disappoint, achieving this objective will be much more difficult,” he said in his budget vote speech to Parliament.

Treasury has forecast a deficit of four percent of gross domestic product (GDP) for the current financial year, based on expected revenue collection of R993.6 billion, but economists have warned that this was based on growth projections that have failed to materialise.

Nene said the government remained committed to fiscal sustainability and that, if necessary, “further measures will be taken to achieve our objectives”.

He said the government's credit rating remained under pressure from global and domestic problems. He called for concerted action to tackle domestic problems.

“Let's demonstrate a greater sense of urgency in the implementation of our policies, acting with speed to remove constraints to economic growth and therefore job creation,” Nene said.

“We will act decisively to avoid further downgrades, as these will result in a significantly higher cost of borrowing, both for government and state-owned companies, and the cost of financing infrastructure programmes will increase.”

The government's liabilities are set to peak at 57.1 percent of GDP in the next financial year, the minister said, due to the government's debt guarantees rising as it supports infrastructure expansion by state-owned entities.

Other commitments in the current financial year include recapitalising the Land Bank to the tune of R500 million and the Development Bank of Southern Africa to that of R2.5 billion.

He said Treasury was reviewing the fiscal framework for local government in terms of both national transfers and municipal revenue generation, and saw a greater role for the DBSA in supporting projects.

“It is common knowledge that our municipalities face challenges in delivering public services to our people,” he said, adding that metropolitan municipalities needed to select programmes more carefully and “make a far greater financial contribution” to their implementation.

“Government is in discussion with the DBSA to facilitate the provision of reasonably priced financing for cities that have prepared bankable projects with private sector participation.”

Nene confirmed that the government's net debt is expected to reach R2 trillion at the end of the medium-term expenditure framework.

Earlier this month, he said he was confident the South African Revenue Service would meet its collection target, obviating the need for the government to cut expenditure or increase borrowing.

Sapa


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