Budget deficit to grow to 3.8 percent for 2009

Wednesday, February 11, 2009

Parliament - Governments spending of R787 billion on public infrastructure over the next three years will push South Africa's budget deficit to 3.8 percent in 2009, Finance Minister Trevor Manuel announced, Wednesday.

Decreased demand for South African commodities and lower outputs, coupled with decreased domestic growth has meant government has had to borrow more funds in order to finance the planned public infrastructure projects.

"Although the budget deficit will rise to 3.8 percent of Gross Domestic Product [GDP] next year, debt service costs will remain moderate over the next three years, at about 2.5 percent of GDP.

"This is possible because we have had the courage to make the right choices over the past decade," the minister said.

The minister highlighted government's prudent spending policy in the past, where government ran a budget surplus as opposed to a deficit, which now allows government to spend on things such as transport, health and education infrastructure, while other governments are not able to.

In 1996, public debt was 48 percent of GDP and rising, and National Treasury therefore put forward a macroeconomic strategy which confronted the problem boldly and decisively, he said.

"Reducing the budget deficit was neither easy nor popular ... but it was the right thing to do and the outcome is that year by year the burden of debt service costs has declined and resources have been released to spend on education, health care, housing and infrastructure.

"This also means that today we are able to respond to the economic downturn, boldly and decisively," Mr Manuel told Parliament.

The funds South Africa is borrowing is not being used to fund failed banks, as is taking place in the United States and Europe, but is being borrowed to construct roads and power stations, classrooms and wards, modernise technology and transform public service delivery, he noted.

The 2009 Budget makes available a further R6.4 billion for public transport, roads and rail networks; R4.1 billion for school buildings, clinics and other provincial infrastructure projects; and R5.3 billion for municipal infrastructure and bulk water systems.

Of the budgeted R787 billion for the next three years, R390 billion will be spent by state-owned enterprises, the National Treasury reported.

Housing and the eradication of informal settlements remain at the forefront of government's infrastructure investment plans, the minister said, adding these issues impact significantly on both employment and poverty reduction.

"In the past three years, the municipal infrastructure grant programme has spent about R32 billion. Over the next three years, infrastructure grants to municipalities total R67 billion, and a further R45 billion will be spent on the Breaking New Ground [BNG] housing programme.

"Together with investment in roads and public transport, these constitute one of the largest areas of expansion of public sector spending, and are rightly prioritised as part of our response to the current deterioration in employment and economic activity," Mr Manuel explained.

The National Treasury reported that government will also over the next three years allocate R25 billion to the Rail Commuter Corporation to invest in new trains and introduce new train routes.

The budget for rail safety inspectors to reduce accidents and delays, perhaps in light of the two recent train collisions in Gauteng, is also being increased.

The R25 billion Gautrain project, which recently enjoyed a very successful test run with journalists and media aboard, is nearing completion with the link between Sandton and the OR Tambo International Airport to be completed by early 2010.

The Bus Rapid Transit (RBT) system, which has been receiving mixed reaction from sectors of South Africa, especially the taxi industry, is receiving R12 billion over the next three years from government.