SA ready to protect its economy

Thursday, August 11, 2011

Pretoria - The South African government is ready to take action to cushion the economy against the current global economic situation, which poses greater uncertainty for developing nations.

"What we mean is that we will assess and manage debt; we will ensure we do enough for infrastructure. We will do things we need to do to refloat the economy," Finance Minister Pravin Gordhan said on Thursday.

"Our own view is that it's 60/40 against the double dip and other people are saying it's 50/50, depending on the decisiveness with which the rest of the world begins to tackle its problems. Let's wait and see," said Gordhan.

On Monday, National Treasury and the Reserve Bank issued a statement that the country would monitor the impact of the downgrading of the US and sovereign debt crisis in Europe on South Africa's economy.

Last Friday, rating agency Standard & Poor downgraded the US credit rating, down from the highest possible rating (AAA) to AA+.

Treasury on Wednesday briefed Cabinet on the impact of global developments and what it meant for the economy.

What was now happening in the recovery stages (which take five years at least) following the 2008 global financial meltdown was that political constraints, as in the US, are being experienced.

"... At which brinkmanship was exercised by key political players [and] the issue of sovereign risk, countries had to bail out their banks. That took on a lot of debt and in addition to the debt, historically developed countries have took on too much debt," said the minister, adding that South Africa's debt to GDP ratio was between 34 and 35 percent this year, in comparison with the 80 to 200 percent of Japan.

The maximum that South Africa is expected to reach is 40 percent. "Political brinkmanship and political dithering and a lack of decisiveness in some parts of the world have created uncertainty in the world about whether we are going to have measures taken to ensure the right level of growth," said Gordhan.

South Africa will take a growth friendly approach including the consolidation of debt.

"What we're doing is monitoring the channels through which South Africa could be impacted upon," he said, adding that this could be through financial systems. Gordhan said South Africa's financial regulatory system was sound.

He said South Africa had survived the first crisis and that "we will make sure we survive."

South Africa has been careful about how it borrows money and that it has not asked the general public to pay for what it has borrowed.

"We want to make sure that we can bounce back if needed," said the minister.

On the issue of South Africa's conditional R2.4 billion loan to Swaziland, Gordhan said South Africa will monitor the situation in that country. He said a joint board, following a 2004 agreement, will meet annually or more times if necessary to monitor the situation.

Earlier on Cabinet spokesperson Jimmy Manyi said the advance to Swaziland was not a loan from the South African fiscus but a guarantee that is backed by their own South African Customs Union (SACU) payments.

The three tranches to Swaziland will be paid based on the fact that the Swazi government brings in place confidence building measures and that fiscal and related technical reforms required by the International Monetary Fund are implemented and that South Africa provides capacity building support. It is also based on the pillar that there is co-operation in multi-lateral engagements.

The loan will be made available in three equal tranches, with the first payment at the end of August, the second in October and the final payment in February 2012.

Repayment of the loan will be done by debit order, which will be paid to that country through a debit order against the SACU account which is held by South Africa's Reserve Bank. The money, which will not be taken from taxpayers, is provided by the Reserve Bank on a 5.5% interest rate.

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