UPDATE 2-South Africa promises spending restraint despite mining windfall

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Pretoria, Nov 11 (Businesshala) – South Africa’s National Treasury on Thursday pledged to cut deficits and curb debt in its mid-term budget, saying it is looking forward to new long-term spending despite being unforeseen by high commodity prices. will not commit.

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Africa’s most industrialized country was hit hard by the COVID-19 pandemic last year, but its economy made an unexpectedly strong comeback in 2021 as global demand for its exports, such as metals, increased.

The Treasury now sees the deficit at 7.8% of gross domestic product (GDP) this fiscal year, 9.3% forecast in the main February budget, and gross debt at 78.1% of GDP in 2025/26 at 88.9%. February.

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Better estimates were influenced by the GDP rebasing by the statistics agency in August.

The Treasury said it would stick to a disciplined fiscal strategy and set a new target of reducing the deficit to 4.9% of GDP in 2024/25.

The Treasury is now seeing a 5.1% expansion in GDP this year, compared to an estimated 3.3% in February.

“The economy has recovered faster than expected. Nevertheless, the recent spike in commodity prices, which has supported GDP growth and tax revenue, is considered temporary,” it said in its budget review.

“The government will not commit to new long-term spending in response to temporary revenue unpredictability.”

cautious approach

The new promises came a week after the governing African National Congress recorded its worst election result since taking power at the end of apartheid, garnering less than 50% of the vote for the first time amid despair over poor services and repeated corruption scandals. did.

The coronavirus crisis has prompted heated debate about whether the country’s already generous social security programs should be expanded.

But the Treasury said additional funding for social grants was dependent on revenue results and would be decided by cabinet in time for the February 2022 budget, for which it has become known.

“In the absence of rapid, job creation growth, it is necessary to sustain social security in a sustainable manner,” it said.

The Treasury said it would provide rand 2.9 billion to help state defense company Daniels pay off a portion of its debt and that it had temporarily set aside 11 billion rand for state insurer Sasaria in the wake of civil unrest in July .

Duncan Peterse, a senior Treasury official who oversees asset and liability management, said Daniels’ guarantee terms mean the state will have to step in.

Beyond what Daniels and Sasria amounted, the Treasury said there would be no new money for state companies in the medium term.

“We have to practice tough love,” Finance Minister Enoch Godongwana told reporters, referring to the state’s efforts to end repeated bailouts to firms.

Godongwana, who was appointed in a cabinet reshuffle in August, said he was “roughly … on the same page” from a financial standpoint as his predecessor, Tito Mboweni. (Reporting by Alexander Winning and Olivia Kumwenda-Matambo; Editing by Kirsten Donovan)

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