Finance Minister Pravin Gordhan painted a sober picture of the country’s economic prospects when he delivered the 2016 Budget Speech on Wednesday afternoon, saying that South Africa’s gross domestic product growth has now fallen behind the rate of increase in the population.
“This means the per capita income is lower – in other words, the average South African is becoming poorer.”
The muted economic growth in turn reduces the state’s ability to spend money on social and economic programmes.
Although global factors - such as the stuttering Chinese economy and low commodity prices - play a role in South Africa’s woes, the economy is also weighed down by local conditions such as a devastating drought, the depreciation of the rand against the dollar in excess of 30% and increasing inflation.
Gordhan also acknowledged that the sudden replacement of former finance minister Nhlanhla Nene with little-known ANC MP Des van Rooyen in December last year rattled investors. “[The] changes in the finance portfolio, [caught] investors off guard and raising concerns about fiscal probity,” he said in his budget review.
Although Gordhan expected the economy to grow at a modest 0.9% it should pick up gradually over the medium term.
There is a danger that South Africa could find itself in the same position as Brazil, he said, especially if there’s no action to address the vicious cycle of lower growth, declining incomes, rising inflation, capital outflows, further currency depreciation, rising interest rates, and falling investment and consumption.
The 2016 Budget proposals are however designed to avoid such an outcome, he said. “Some of these measures will entail short-term economic discomfort, but the alternatives are far worse.
By stabilising the fiscal position and restoring the momentum of growth, South Africa can continue to build on the social progress it has achieved since 1994.”
Source: Fin24
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