Cape Town – South Africa’s medium-term economic growth remains weak due to a combination of factors, including power cuts, poor logistics performance, high inflation, rising borrowing costs, and a challenging global environment.
Finance Minister Enoch Godongwana presented the Medium Term Budget Policy Statement (MTBPS) in Parliament on Wednesday, forecasting a real GDP growth of 0.8% in 2023 and 1.4% between 2024 and 2026, which is lower than previous projections.
“This is 0.1 percentage points lower than the growth projection at the time of the 2023 Budget. These growth rates are not sufficient to achieve our desired levels of development,” Godongwana said.
Global growth forecasts are also lower at 3% in 2023 from a projected 3.5% in 2022.
“The weaker growth outlook for China, South Africa’s largest trading partner; the lower commodity prices; and the risk that the US interest rates will remain higher for longer, means the global economic environment is less supportive of South Africa’s growth prospects,” he said.
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The minister elaborated that, since February, the risks facing the South African economy, such as falling commodity prices, rising inflation, and a depreciating Rand, have manifested, leading to a substantial weakening of public finances.
“The main budget deficit has increased by R54.7 billion compared with the 2023 Budget estimates. This reflects lower revenue performance, higher wage bill costs and higher projected debt-service costs. The main reasons for this are a sharp fall in corporate income tax, particularly from the mining sector, although personal income tax collection was better than forecast.
“The result of the shortfall is a substantial worsening in the main budget deficit in the current fiscal year. We are now projecting a deficit of 4.9 percent of GDP compared to our previous estimate of 4.0 percent. Under these circumstances, measures to stabilise public finances and reform the economy to generate higher growth are essential,” he said.
Public finances have also weakened, with an increased budget deficit due to lower revenue, higher wage costs, and rising debt-service expenses.
The minister emphasised the need for measures to stabilise public finances and promote economic reforms.
Despite these challenges, some sectors of the South African economy have shown resilience and growth, such as tourism, agriculture, construction, transport, and communications, he said.
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Source: AFP
Picture: Unsplash
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