Gordhan: Govt will meet budget deficit

Cape Town – The governement will meet its budget deficit target for 2013/14, it was surprisingly announced in the mini budget on Wednesday.
Although it was widely expected that the budget deficit of 4.2% of GDP would have to be lifted by Finance Minister Pravin Gordhan in the mini budget because of weaker economic growth, it will remain the same after including extraordinary receipts of R11.4bn and extraordinary payments of R0.2bn.
When extraordinary transactions are excluded, the deficit climbs to 4.5%.
According to the mini budget, the fiscal framework for the three-year spending period ahead strikes a balance between consolidation and support for the economy.
The target of reducing the budget deficit to 3.0% of GDP in 2016/17 will therefore remain.
Spending will remain within the non-interest expenditure ceiling established in the February budget. It states further that SA has several strengths that limit the vulnerability of its fiscal position and allow some countercyclicality.
Firstly, the macroenconomic policy framework remains well grounded and anchored by the principles of countercyclicality, debt sustainability and intergenerational equity.
Credible monetary policy institutions and a flexible exchange rate enable the economy to adjust to external shocks.
Furthermore, financial markets are deep and liquid and private sector financial institutions generally well managed.
Corporate and public balance sheets are robust and household debt levels, though high, are declining. Levels of foreign denominated debt are low, reducing exposure to exchange-rate shocks. A weakening of the economic and fiscal outlook in recent months is, however, also a reality.
Economic growth had been revised downward to 2.1% since Februarys budget.
Furthermore, commodity export prices, which supported buoyant revenue growth over the past decade, have retreated from high levels.
Historically low bond yields, in part because of interventions by the US Federal Reserve, have also started to rise, putting pressure on interest costs.
Lastly, the reliance on foreign investors to finance the budget deficit has increased.
According to the mini budget, the deteriorating current account deficit (6.7% of GDP) and increasing debt to GDP ratios underscore the need to continue fiscal consolidation.
Yet at the same time slower domestic demand and high unemployment require government to maintain fiscal support to the economy, the mini budget states.
– Fin24