South Africa’s austere budget targets deficit, avoid downgrades

Africa’s most developed economy is struggling with shrinking growth, unemployment running at 25 percent, and widespread poverty.

“It will be a market-friendly budget, but the minister is very limited in terms of spending”, Thabi Leoka, an economic strategist at Argon Asset Management, said by phone from Johannesburg.

South Africa will contribute close to R12 billion towards the New Development Bank (also known as the Brics Bank), while R3 billion has been set aside as a contingency reserve, should emergencies arise.

The changes investors would like to see include privatisation – or part privatisation – of under-performing state-owned enterprises, including the loss-making national carrier South African Airways.

These increases would affect property sales, fuel, sugary drinks, alcohol, tobacoo and and capital gains, as well as environmental levies, which are expected to bring in an extra 18bn rand ($1.18bn; £840m).

Gordhan may reduce spending targets over the next three years by forcing government departments to cut waste, such as travel and entertainment costs, according to Barclays Group Africa Ltd.’s investment banking unit.

Read also: Gordhan on SAA: Targets state-independency.

“We will continue to act aggressively against the evasion of tax through transfer pricing abuses, misuse of tax treaties and illegal money flows”, Gordhan said.

Fitch and Standard and Poor’s have South Africa on BBB-, just a step into investment grade.

“Net national debt is projected to stabilise at 46.2 percent of GDP in 2017/18, and to decline after that”.

The South African currency, the rand, which has halved over the past five years, fell as he was speaking. Although the country is rich in mineral resources it has been hit hard by falling commodity prices globally and its farmers have been hit by the worst drought in more than a century.