Five strategic pillars inform Manuel's 2009 Budget

Wednesday, February 11, 2009

Parliament - The protection of the poor and sustained employment growth are two of the five pillars that has formed the basis for Finance Minister Trevor Manuel's 2009 Budget Speech.

In this time of global economic turmoil, the minister highlighted that central to government's budget for 2009 was accelerating growth and job creation, broadening economic participation and reducing poverty levels.

Delivering his Budget Speech to Parliament, Mr Manuel said: "In the framing of this budget we have been guided by five enduring principles [including] protecting the poor; sustaining employment growth and expanding training opportunities; building economic capacity and promoting investment.

"Addressing the barriers to competitiveness that limit equitable sharing of opportunities; and in doing these things we must maintain a sustainable debt level so that our actions do not constrain our development tomorrow.

According to National Treasury, South Africa's incomes and outputs slowed sharply in the second half of 2008 with Gross Domestic Product (GDP) growth averaging about 3.1 percent in 2008.

With the slowdown in international demand for South Africa's exports, including commodities which form the bedrock of the country's economy, as well as reduced consumer spending and high interest rates, the GDP is expected to average 1.2 percent for 2009, recovering to 4 percent by 2011.

"We expect output growth to improve in 2010, supported y public infrastructure spending, lower interest rates, the 2010 FIFA World Cup and a recovery in the world economy.

"... [however] trading conditions are tough and are likely to deteriorate further in the short term," the minister highlighted.

The year of 2008 spelt out a year of economic shocks for South African producers with increasing electricity tariffs, rising input costs, high interest rates and slowing demand for goods among consumers.

The mining sector became one of the worst affected by the slowdown in demand in 2008 and evidence of this is that one of the biggest mining houses in the country, Anglo Platinum, on Monday announced 10 000 contract mining jobs would be cut in 2009.

The minister said the manufacturing, retail trade and residential construction sectors have also been badly hit by the global slowdown and have already had to cut workers with the pace of job losses set to increase.

Inflation in South Africa has over the past two years been fuelled by rapid increases in food and oil prices, domestic capacity constraints and a weaker local currency, as well as rising electricity tariffs.

The Consumer Price Index excluding interest on mortgage bonds (CPIX), used as an accurate reflection of inflation, averaged 11.3 percent in 2008, spurred by an inflationary cycle which began in June 2006.

The inflation figure, now measured by the reweighted and rebased CPI excluding Owners Equivalent Rent (OER), used as the new consumer basket of goods, is expected to result in a technical drop of less than one percent in inflation.

Despite this, National Treasury expects inflation to return to within the South African Reserve Bank's inflation target band of 3-6 percent by the first half of 2009.

Statistics South Africa is expected to announce the new CPI inflation figure for January on 25 February 2009.

In response to improving inflation outlook and an easing of inflationary pressures such as oil prices, the central bank's Monetary Policy Committee (MPC) dropped repo rates a cumulative 1.5 percent between December 2008 and February 2009.