South African finance minister warns of tough times ahead

Oct 25, 2011, 14:22 GMT

Johannesburg - South Africa's tax revenue will fall short of expectations this year, Finance Minister Pravin Gordhan said on Tuesday, adding that government must tighten its belt and focus its expenditures on investment rather than consumption.

'We must do more with less,' Gordhan said, adjusting the growth forecast downward slightly. He also noted the rising cost of servicing the public debt.

Gordhan was releasing his medium-term budget policy, with the global economic turmoil worrying the domestic markets and playing a role in stifling job growth.

'The eurozone crisis has brought new financial challenges and threats to global growth, and we are also seeing rising inflation and overheating in several economies, including Brazil, India and China,' said Gordhan, warning of a 'crisis of leadership.'

Gross domestic product growth this year would be 3.1 per cent- down from previous estimates. In 2012 GDP expansion is expected to reach 3.4 per cent and rise to above 4 per cent in 2014.

These figures are all far below the 7-per-cent annual growth the government says is needed to significantly bring down unemployment. The jobless rate is hovering near 26 per cent of the workforce in Africa's largest economy.

'While this level of growth is not as vibrant as we would like, it is a base on which to build,' Gordhan said.

The government needed to invest more in infrastructure projects that would help grow the economy, while also restricting the public sector wage bill, which was increasingly weighing on the state budget, he said.

The finance minister proposed limiting salary increases for civil servants to match only the rise in the cost of living.

South Africa, whose export rates remain 15 per cent below their 2008 levels, would be looking to borrow a little more over the coming years, he said.

The budget deficit would be 5.5 per cent of GDP this year, but Gordhan said it would decline to 3.3 per cent by 2015. Prior to the 2009 recession, the country had a surplus.

President Jacob Zuma is facing domestic pressure to fulfill a promise to create jobs, as the unemployment rate has grown on his watch. He faces a party conference next year and a leadership battle that is heating up.