Minister of Finance Malusi Gigaba File picture: ANA

Parliament - South African Finance Minister Malusi Gigaba conceded on Thursday that the country was facing tougher times ahead as its economic growth outlook was bleak.

Briefing Parliament's standing committees on finance and appropriations following his maiden medium-term budget policy statement, Gigaba reiterated his message that the country needed a new growth path while maintaining the ceiling on non-interest expenditure.

"What the statement we presented yesterday [Wednesday] is trying to say is that times are tough, but we have to be tougher than them," Gigaba said.

"We have to take ourselves out of the current situation because if things do not change we will find our debt escalating, deficit escalating, and we will find ourselves unable to instill confidence that we are able to manage our finances."

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South Africa revised down its economic growth projections in the foreseeable future from 1.3 percent as tabled at the time of the budget to 0.7 percent for 2017, only reaching 1.9 percent in 2020.

Over the three-year spending period ahead, consolidated expenditure will grow by an annual average of 7.3 percent, from R1.6 trillion in 2017/18 to R1.9 trillion in 2020/21. Debt-service costs as an expenditure category grows the fastest at 11 percent.

The contingency reserve would be cut down to R16 billion over the next three financial years to help offset revenue shortfalls. National Treasury projected a revenue shortfall of R50.8 billion this financial year.

Gigaba said additional spending commitments may emerge from policy processes underway, including fee-free higher education, National Health Insurance (NHI), defense review, early childhood development, land reform, and large infrastructure developments.

But he said some of the most worrying government expenditure included the increasing wage bill and the hole dug by failing state-owned companies.

"Several state-owned companies persistently demonstrate operational inefficiencies in procurement practices, weak corporate governance and failure to abide by their fiduciary obligations. [Also], a new civil service wage agreement in which salary increases exceed CPI inflation, and without headcount reductions, would render the current expenditure limits difficult to achieve," Gigaba said.

"To anchor a sustainable budget, structural increases in expenditure must be matched by structural increases in revenue. The expenditure ceiling can be adjusted to accommodate new spending priorities when a permanent source of revenue is found to offset the increased spending. For example, government is considering proposals to finance the NHI through adjustment to the medical tax credit."

Democratic Alliance spokesperson for finance David Maynier said Gigaba was deferring the most important aspects of the budget to an unknown future date with the hope that President Jacob Zuma would not be president of the country after his party’s elective congress in December, saying that permanent sources of revenue should be found soon.