Treasury targets lower budget deficit

Cape Town - South Africa will “most likely” achieve the strict consolidation targets set out in the Budget, the Treasury said on Tuesday, despite recent signs that the economy was headed for a prolonged period of low growth.

The economy of Africa's most industrialised country is expected to grow by less than 1 percent this year after expanding 1.3 percent in 2015, hobbled by low commodity prices, drought and political ructions that have unnerved investors.

“In our case we are still convinced for this year that we will most likely achieve the revenue target that we put out, most likely achieve the fiscal consolidation,” the Treasury’s director general, Lungisa Fuzile, told Parliament.

Finance Minister Pravin Gordhan tabled a package of spending cuts, civil service job freezes and moderate tax hikes in the Budget in February, aimed at holding off credit downgrades by ratings agencies that have cited poor growth as major risk.

The government was targeting to reduce the budget deficit for the 2016/17 fiscal year to 3.2 percent of GDP from 3.9 percent in 2015/16 period as it tightens spending in the face of lower revenue.

But this will be an uphill task for Pretoria as analysts fear the economy is on track for a first recession in seven years and could be downgraded to “junk” as major sectors of the economy slipped into sharp decline.

Gordhan said last week he is scheduled to hold meetings with rating agencies Fitch and Standard & Poor's in the next few weeks after Moody's left its rating of South Africa's debt at Baa2, two levels above sub-investment grade.

Fitch and S&P rate the country at one notch above sub-investment grade and plan to release their reviews in June.

A change in ratings to speculative grade typically leads to a sharp rise in borrowing costs.

REUTERS