While many challenges still remain, there is a sense of optimism about the South African economy going into the future, Finance Minister Malusi Gigaba said on Wednesday.
“We stand before you with a profound sense of optimism, purpose and resolve,” said Minister Gigaba as he tabled his maiden Budget Speech in the National Assembly.
The Minister’s comments echoed National Treasury’s 2018 Budget Review document, which stated that following a difficult year for the economy and the fiscus, a sense of optimism has taken hold in the opening months of 2018.
Since the tabling of the Medium Term Budget Policy Statement (MTBPS) in October 2017, the South African economy has grown faster than the projected rate, despite a short recession seen in early 2017.
Government is beginning to address the problems that have eroded domestic confidence, such as corruption and poor governance at several State-owned companies. In addition, the promise of improved political and policy certainty has spurred investment and stabilised the rand.
“Despite these positive signs, significant risks remain to economic and fiscal projections. Government is working to boost economic growth, promote more rapid investment to create employment, and stabilise the precarious finances of State-owned companies,” noted the Budget Review document.
The 2018 Budget, which was tabled under the administration of newly appointed President Cyril Ramaphosa, accelerates government’s efforts to narrow the budget deficit and stabilise debt, laying the foundation for faster growth in the years ahead.
“After several years during which economic growth undershot our projections, we now see the improved growth projections for 2018 and subsequent years as a floor, rather than a ceiling. We are convinced that as business and consumer confidence return, and as government follows through on its commitments to enable growth with prudent, fast and decisive action, we can exceed our growth projections,” said the Minister.
Through the budget, the country can achieve faster growth which is needed dramatically to reduce unemployment, poverty and inequality, and relieve pressure on the fiscal framework.
“This is a tough, but hopeful budget,” said the Minister.
The Budget, tabled by Minster Gigaba sets out several proposals, including adjusting expenditure and raising value-added tax (VAT) by a percentage point to 15%. According to Treasury, at the current 14%, VAT is lower than the global and African average.
At the time of the 2017 MTBPS, gross national debt was projected to breach 60% of gross domestic product (GDP) in 2021/22, and continue rising thereafter. This projection reflected major revenue shortfalls, anaemic economic growth and a limited policy response.
“In the 2018 Budget, the combination of higher GDP growth, a narrower deficit, a stronger currency and lower borrowing rates results in an improved debt-to-GDP outlook, with debt stabilising at 56.2% of GDP in 2022/23,” noted the Budget Review.
While the outlook has improved, Treasury has cautioned that the complexity of the economic and fiscal environment should not be underestimated, adding that economic growth is tepid with unemployment still at high levels. Recently, data from Statistics South Africa showed that unemployment had dropped by one percentage point in the fourth quarter of 2017 falling to 26.7%.
“After a short recession in early 2017, the economy is starting to recover, but the improvement is not yet broad or deep. The global recovery has helped, with higher commodity prices and stronger growth among South Africa’s trading partners,” said the review. - SAnews.gov.za
