Finance Minister Pravin Gordhan aims to narrow South Africas budget deficit to 3.1 percent of gross domestic product by 2015, from 4.8 percent this year.

Andres Martinez and Robert Brand

South Africa’s history in keeping the budget deficit under control should assure investors the government would reject any populist push within the ruling party, Finance Minister Pravin Gordhan said on Monday.

“Grant us our fiscal credibility,” Gordhan said. “Where have we responded to inappropriate pressure from any side in this administration?”

The ANC, at its elective conference next month, is due to consider proposals to nationalise mines and boost social spending, worsening investors’ risk perceptions as South Africa struggles with the most violent mining strikes since apartheid ended.

Gordhan has pledged to narrow the budget gap to 3.1 percent of gross domestic product in 2015 from 4.8 percent this year and freeze spending increases.

“The ANC leadership is very aware that it needs to move onto a new trajectory and sustain its credibility both in South Africa and abroad,” he said.

Gordhan’s pledge comes as credit rating companies threaten to downgrade the nation’s debt close to junk. Moody’s Investors Service cut the credit rating one level on September 27 and Standard & Poor’s (S&P) lowered it by the same amount on October 12, maintaining a negative outlook.

The cost of protecting South African debt against non-payment for five years using credit default swaps rose 35 basis points to 162 since August 9, the day before a wildcat strike began at Lonmin’s Marikana mine. Swaps in similarly rated Brazil, Russia and Mexico have declined in the same period.

A slump in mining is undermining economic growth as Europe’s debt crisis cuts exports.

Gordhan said last month in his medium-term budget that the economy would grow 2.5 percent this year, the slowest pace since a 2009 recession. That hampers the government’s ability to dent a 25.5 percent jobless rate.

The mining industry would probably keep losing jobs in the next 12 months before it started rebounding, Gordhan said.

“Clearly, we are going to lose ground over the next year, but we will recover,” he said.

While the government would struggle with its goal of 7 percent economic growth, “we are not sitting on our laurels”.

The Lonmin strike spread to other mines and strikes also disrupted output at farms and transport companies.

Investors were ignoring that the ANC-led government produced the first budget surpluses since the 1960s and had kept budget deficits within targets since then, Gordhan said. The ANC conference would not change the government’s commitment to meet budget targets and preserve the nation’s investment rating, he added.

Gordhan widened his targets for the fiscal shortfall in his medium-term budget as slower growth curbs tax revenue. The deficit is set to widen to 4.8 percent in the 12 months to March next year and reach 4.5 percent the following year.

“We need to get our act together as South Africans and restore confidence,” Gordhan said. – Bloomberg