South Africa’s Finance Minister Pravin Gordhan said on Wednesday he was confident of meeting fiscal targets for 2016, but that stronger economic growth remained a challenge.
In a speech to parliament, Gordhan said the budget deficit would be reduced to 2.4 percent of gross domestic product over the next three years, confirming the resilience of public finances.
The Treasury cut the 2016 growth forecast for Africa’s most industrialised economy to 0.9 percent in February from the 1.7 percent forecast earlier but said it still expected to cut its budget deficit to 3.2 percent even in the face of lower revenue, by cutting spending.
“Stronger economic growth remains our most pressing challenge,” Gordhan said. “By improving investment and growth in our economy, we will be able to raise revenue sustainably and expand public services.”
Gordhan said while the government had allowed wider budget deficits to ease pressure on the economy in the wake of the 2008 global financial crisis, the room to manoeuvre had shrunk bringing the need for consolidation to ensure sustainable debt.
Ratings agencies have warned of possible downgrades to South Africa’s investment grade credits ratings if they see evidence that Pretoria is not committed to a prudent fiscal path.
The South African Reserve Bank said on Tuesday that any further ratings downgrade of South Africa’s economy could lead to increased capital outflows.
“Over the next three years the deficit will be reduced to 2.4 per cent, stabilising debt as a percentage of GDP and confirming the resilience of our public finances,” Gordhan said.