Zuma: Budget to aid fiscal discipline

Finance Minister Pravin Gordhan is due to announce the medium-term budget on Wednesday.

FILE: President Jacob Zuma. Picture: AFP.

JOHANNESBURG - Wednesday's interim budget announcement will stimulate economic growth but also encourage fiscal discipline, President Jacob Zuma said on Tuesday, allaying investor fears of increased government spending ahead next year's elections.

At the announcement of the Medium-Term Budget Policy Statements, Finance Minister Pravin Gordhan is expected to keep a rein on spending but widen his deficit forecast for 2013/2014 to 4.9 percent of GDP from the 4.6 percent seen in February, a Reuters poll of 15 economists found.

Sluggish efforts to bounce back from a 2009 recession have constrained revenue collection, and Gordhan has consistently had to push out the timeline for narrowing the deficit.

"South Africa is still at risk of a rating downgrade and as such needs to exert great caution in fiscal expenditure," said Investec economist Annabel Bishop, adding that Gordhan needed to find some way of cutting costs.

Stanlib's Chief Economist Kevin Lings goes as far as to say the 'party' is well and truly over.

"Clearly, the financing in almost every respect is under pressure, partly because the growth rates are just not there."

He says the economy would improve drastically if growth was encouraged and new jobs created.

"Realistically, the growth rates that the [finance] minister has are probably not going to be achieved."

Speaking at the opening of a R20 billion expansion of a De Beers diamond mine - the biggest single diamond investment in decades - Zuma tried to reassure investors after last year's violent, wildcat mining strikes.

The strikes, which spread from the platinum sector to other mines, cost the economy billions in lost revenue and were a major contributor to two sovereign ratings downgrades.

"Our message to you and the world today is that South Africa is open for business. It is open for both domestic and foreign investments," Zuma said. "Our mining sector is poised for growth and expansion."

Mining directly accounts for more than 8 percent of South African GDP, and twice that when indirect activity is taken into account.