Wednesday February 11, 12:35 PM
S.Africa boosts spending as growth signs plunge
By Fran Blandy
CAPE TOWN (AFP) - South Africa's economic growth is set to plunge to a decade-low point of 1.2 percent, with increased social spending likely to balloon a budget deficit, Finance Minister Trevor Manuel said on Wednesday
The normally optimistic finance minister was forced to clip growth prospects, but said it was thanks to prudent fiscal policy that the country's economic state was not so dire as many of those around the world.
To boost prospects of long-term economic growth, Manuel poured billions of dollars into public infrastructure investment and social spending, sending the country into a budget deficit after years of surplus.
"With commodity prices generating lower export earnings, weak consumer spending and slowing private sector investment, growth in 2009 is forecast to be 1.2 percent, the lowest rate since 1998," Manuel told parliament.
After six years of strong economic growth, with a four-year average of five percent, growth slowed to about 3.1 percent in 2008 as the economy reeled from the effects of a global economic downturn.
This is the 13th budget delivered by the finance minister, one of the longest serving in the world, who annually entertains parliament with witty quips while maintaining his orthodox approach to the country's finances.
Sound banking (SNBN.OB - news) systems and a prudent fiscal position have mostly shielded South Africa, which is braced to weather what Manuel referred to as an "economic cataclysm".
Developed countries around the world have gone into recession and the International Monetary Fund revised estimates of global growth in 2009 five times, down to most recent estimates of half a percent.
Government will offset thousands of job losses and ailing industries with the budget which pours money into social spending, job creation and building infrastructure for long-term economic growth.
"While responding to the changed economic outlook, our primary goal remains the reconstruction and development of our economy ... the creation of jobs for our people and security in our communities," said Manuel.
Delivering government's promises to reduce poverty, create jobs and boost infrastructure, spending will widen the budget deficit to 3.8 percent in 2009/10, which Manuel expects will fall to 1.9 percent by 2011/12.
"Madam Speaker, the quantum of the rands and cents allocated to these programmes is not what provides relief. No, we can only be satisfied when we know that the quality of life of the poor is improving."
Many of the increases are in line with ruling African National Congress campaign promises ahead of general elections on April 22.
Manuel has often come under fire for maintaining a surplus, and told journalists he could easily have jumped to a 20 percent deficit in an election budget.
"What you have is the most unbelievably honest position we can take," he said, adding he had resisted a "populist budget" that fell prey to stimlus packages, choosing instead to invest in infrastructure, which would see and injection of 787 bilion rand over the next three years.
The 2010 FIFA World Cup, lower inflation -- expected to fall to 5.8 percent in 2009 from a high of 13.7 percent in August -- and a more competitive rand will boost the economy, with growth of four percent to return by 2011, he said.
The budget allocations amount to an extra 158 billion rand being spent over the next three years, with a total of 738.6 billion rand to be spent in 2009/10.
Slower growth and depressed trade meant tax revenue came in at 14.2 billion rand less than expected, while main budget revenue 50 billion lower than we projected last in February last year, he said.
Manuel also provided some 13.6 billion rand relief for individual taxpayers after high inflation in 2008.
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