South Africa was hit harder by the global downturn than expected and its recovery from its first recession in 17 years will be slow, Finance Minister Pravin Gordhan said.
He also said in a speech to parliament that the fiscal deficit for 2009/10 will be larger than budgeted in February due to lower tax revenue.
“While there are indications that the South African economy might have reached the bottom of this sharp downturn, the road to recovery will be slow and gradual,” Gordhan told parliament.
Africa’s biggest economy shrank by 3.0 % in the second quarter of 2009, after a decline of 6.4 % in the first three months. It has contracted for three consecutive quarters and some economists say it will decline again in the third quarter.
Both the demand and supply side of the economy are under strain, with consumers struggling under high debt levels and job insecurity.
The mining, manufacturing and retail sectors which make up a third of the economy have been all contracted by record margins.
Gordhan and central bank Governor Tito Mboweni have both warned that South Africa’s recovery will lag that in other countries.
The Reuters Econometer poll showed GDP will fall 1.89 % this year, before recovering to 2.16 % growth next year.
Gordhan also said the budget deficit “would certainly not be at the same level” as the 3.8 % to gross domestic product the Treasury had previously forecast, given lower revenue and no reduction in spending.
“The budget deficit for 2009/10 stands at 3.8 % but when we deliver the medium term budget policy statement (MTBPS) to you later in October it certainly won’t be at the same level,” he said.
“The public sector borrowing requirements have increased sharply in line with the decisions that we have made and reflect our intention to ensure that we can maintain our current levels of expenditure.”
Gordhan will present the MTBPS on October 27, giving updated three-year economic and budget forecasts ahead of the annual main budget in February.
The National Treasury has said tax revenue could undershoot its target by between R50 and 60 billion this year and it will increase borrowings to make up for the shortfall.
“To put it more simply despite the fact that we have dropping revenues in South Africa, government has decided not to cut any of its expenditure in any way but rather to borrow in a prudent way in order to meet our expenditure requirements,” Gordhan said.
Government and its utilities plan to spend about 787 billion rand over the next three years on infrastructure.
Morgan Stanley sees public sector borrowing requirement for 2009/10 jumping to above 10 % as a percentage of GDP instead of the 7.5 % the Treasury expected.
The government has ramped up domestic bond issues over the past two months and launched an international bond which it re-opened last week to raise an extra $500 million.
JP Morgan has estimated the fiscal gap could balloon to 7.4 % of gross domestic product this year.
Pic: Young men siiting around with nathing to do