SA mid-term budget to boost GDP

JOHANNESBURG – South Africa’s Finance Minister Trevor Manuel is set to slash the 2006/07 budget deficit when he presents three-year spending plans next Wednesday that will seek to boost growth in Africa’s biggest economy.

The government has announced heavy spending on infrastructure for the next seven years to help raise annual economic growth to at least six per cent by 2010 to cut poverty, which remains widespread more than a decade after the end of apartheid. Current growth of around five per cent has made only a small dent in unemployment, officially estimated at 25,6 per cent, leaving anger simmering among the country’s black majority.Economists say the medium term budget policy statement, which will set the tone for the 2007 budget, will point to well managed finances despite a likely cut in growth forecasts from February’s budget.The budget deficit would likely come in at less than 0,5 per cent of gross domestic product (GDP), down from a previous estimate of 1,5 per cent, analysts said.The South African Revenue Service announced last week tax collection was running some 17 billion rand over what was budgeted for the first 6 months of the fiscal year.The anticipated extra cash will allow Manuel to either raise spending or cut taxes, but analysts say the government’s capacity to spend efficiently is already being tested while tax cuts could encourage already high – and inflationary – consumer spending.Growth forecasts should be cut after three interest rate hikes since June to 8,5 per cent from a 24-year low of seven per cent.More rises are expected this year and in early 2007.The economy grew by 4,9 per cent in 2005 – its fastest rate in more than two decades – and it was running at the same level in the second quarter of this year.But growth has largely been driven by rampant consumer demand, helping the current account balloon to more than six per cent of GDP.The Treasury predicted in the 2006 budget the economy would grow by 5 percent in 2005, 4,9 per cent in 2006 and 5,2 per cent in 2008.Economists will also be looking for more details on the spending programme, particularly for more money to tackle rampant crime and to improve education and health services.Analysts said Manuel may tinker with South Africa’s remaining exchange controls, but concern over the current account gap may put off relaxation of limits to company and pension fund investments offshore.Nampa-ReutersCurrent growth of around five per cent has made only a small dent in unemployment, officially estimated at 25,6 per cent, leaving anger simmering among the country’s black majority.Economists say the medium term budget policy statement, which will set the tone for the 2007 budget, will point to well managed finances despite a likely cut in growth forecasts from February’s budget.The budget deficit would likely come in at less than 0,5 per cent of gross domestic product (GDP), down from a previous estimate of 1,5 per cent, analysts said.The South African Revenue Service announced last week tax collection was running some 17 billion rand over what was budgeted for the first 6 months of the fiscal year.The anticipated extra cash will allow Manuel to either raise spending or cut taxes, but analysts say the government’s capacity to spend efficiently is already being tested while tax cuts could encourage already high – and inflationary – consumer spending.Growth forecasts should be cut after three interest rate hikes since June to 8,5 per cent from a 24-year low of seven per cent.More rises are expected this year and in early 2007.The economy grew by 4,9 per cent in 2005 – its fastest rate in more than two decades – and it was running at the same level in the second quarter of this year.But growth has largely been driven by rampant consumer demand, helping the current account balloon to more than six per cent of GDP.The Treasury predicted in the 2006 budget the economy would grow by 5 percent in 2005, 4,9 per cent in 2006 and 5,2 per cent in 2008.Economists will also be looking for more details on the spending programme, particularly for more money to tackle rampant crime and to improve education and health services.Analysts said Manuel may tinker with South Africa’s remaining exchange controls, but concern over the current account gap may put off relaxation of limits to company and pension fund investments offshore.Nampa-Reuters