Cape Town - South Africa forecast a slightly wider budget deficit this year compared to projections made in February due mainly to weaker economic growth hitting revenue collection, but offset the impact with a three-year cap on government spending.

In its Medium Term Budget Policy Statement (MTBPS) unveiled on Thursday, the Treasury projected South Africa's 2012/13 budget deficit at 4.8 percent of GDP, in line with a Reuters poll of economists.

Treasury had previously forecast a deficit of 4.6 percent.

Finance Minister Pravin Gordhan stressed that the widening deficit was not due to overspending, but was a result of slower economic growth and its impact on revenue collection.

“Higher-than-anticipated budget deficits have been the result of a weak recovery in tax revenue rather than uncontrolled increases in non-interest spending,” he said.

“Owing to weaker economic conditions, anticipated tax revenue for 2012/13 has been revised downwards, leading to a higher-than-projected consolidated budget deficit in the current fiscal year.”

Gordhan said over the next three years departments would save or “reprioritise” 40 billion rand ($4.6 billion) in funds, and the Treasury would draw down on its reserves, allowing for a bigger deficit without increased government spending.

Offshore investors had worried that three months of mining labour unrest, including the police killing of 34 striking miners in August, would put pressure on Gordhan to increase spending to try and ease some of the social tensions.

However, Gordhan said he had allocated enough resources at his main budget in February to achieve government's social commitments, some of which were being misspent.

“By reducing waste and inefficiency, government can achieve better outcomes within this resource envelope,” he said.

In the MTBPS, Treasury said it expected to collect R5 billion less tax this year than it had anticipated in February.

Estimated revenue for the first half of this year has been cut, while VAT and customs duties are expected to bring in more money. The mining strikes and lower commodity prices should also result in less by way of mineral and petroleum royalties.

In the 2013/14 year, the Treasury expects the budget gap to be at 4.5 percent of GDP, before narrowing substantially to 3.1 percent in 2015/16. - Reuters