Finance Minister Nhlanhla Nene. File photo: Joshua Roberts

Cape Town - South Africa expects a slightly wider budget deficit of 4.1 percent of GDP for 2014/15 from the 4 percent seen in February, but will rein in spending and raise taxes to get the gap down to 2.5 percent in three years, the Treasury said on Wednesday.

In its medium term budget policy statement, which sets out spending plans and growth forecasts for the next three fiscal years, the Treasury said weak growth in Africa's most advanced economy had impacted tax revenue.

“The budget deficit is high, debt levels have approached the limits of sustainability,” it said.

“Without an adjustment, it is likely that South Africa's sovereign debt would be downgraded to “sub-investment grade”, risking impaired access to credit markets.”

The government would reduce its spending ceiling and raise tax revenue over the next two years, stabilising debt at nearly 46 percent of GDP by 2017/18, before starting to decline.

Lower spending, combined with increased tax revenue, would improve South Africa's fiscal position by 22 billion rand in 2015/16 and 30 billion rand the year after.

The government would introduce proposals in its 2015 Budget next February to generate at least 27 billion rand more in revenue over the next two years and would freeze new jobs in the public sector while ensuring that support for state firms did not widen the deficit.

Spending cut backs would however not compromise key services and financial support for South Africa's poorest, the government said. - Reuters