Fiscal targets at risk, says Gigaba
Growth in 2017 is likely to be lower than the 1.3% that the Treasury forecast in February and Finance Minister Malusi Gigaba has warned that further consolidation measures might be necessary.
"Significant risks remain to the achievement of our fiscal targets," Gigaba said on Thursday in summing up the first reading debate on the Appropriations Bill in Parliament.
His comments come in the wake of the announcement earlier this week of a 0.7% contraction in the first quarter, which pushed SA into recession.
Gigaba reaffirmed the government’s commitment to consolidation as a key pillar of fiscal policy but economists have warned that in the context of low growth and lower-than-expected revenue, this would require a cutback in spending and/or higher taxes.
The IMF has revised SA’s growth projection in 2017 to 1%, while the World Bank has projected a 0.6% growth rate, down from its previous 1.1%.
BNP Paribas SA economist Jeffrey Schultz has revised his growth estimate to 0.7% in 2017, rising to 1.3% and 1.5% in the subsequent years.
"The prospect of sustained low growth over the medium term remains the greatest risk to our fiscal policy objectives and limits government’s ability to generate more revenue. Further consolidation measures may be required to ensure fiscal sustainability," Gigaba told MPs.
The first-quarter contraction, he said, "introduces significant downward bias in the GDP growth estimates" contained in the 2017 Budget Review, which forecast growth of 1.3%.
If sustained, this growth rate "will lead to further decline in GDP per capita and revenue, threatening the affordability of our planned expenditure. This puts more pressure on us as government to intensify our growth programme and improve confidence as a matter of urgency," Gigaba said.
He said the Cabinet had committed to provide clarity and certainty on key policy issues with the aim of unlocking growth in the economy in the next few weeks. Timelines for the finalisation of these policies would be announced soon.
Gigaba said the government was also committed to a "speedy response" to the issues raised by credit ratings agencies.
He reiterated the government’s commitment to reduce the budget deficit over the next three years to 3.3% and to stabilise debt as a percentage of GDP. It was also committed to achieving greater efficiency and to stabilising the share of the public sector wage bill of total government expenditure. Personnel trends in all departments were being closely monitored. Measures were under consideration to generate more taxes over the medium term.
The DA, EFF, Congress of the People, the African Christian Democratic Party and the Freedom Front Plus objected to the passage of the bill.