PRETORIA – Global and local economic conditions have changed since the medium-term budget statement and government’s income and expenditure will need to be tailored accordingly, finance minister Pravin Gordhan told journalists on Thursday.
Gordhan and minister in the Presidency Jeff Radebe, addressed the media in Pretoria to report back on a special cabinet meeting the day before concerning the state of the economy and budget-related matters.
Gordhan will deliver his budget speech on February 24.
Economic conditions complex
The current global and local economic conditions are very complex and challenging and government is taking it very seriously, Gordhan said.
He added that the global economic environment is currently “extraordinary difficult” and this may last a long time. He said while emerging economies boosted global growth when developed economies were in a recession after the 2008 global financial crisis, “the sentiment is turning negative towards emerging economies now that the developed economies are growing again”.
Gordhan said this affects South Africa as an emerging economy, which is exacerbated by the fact that its economy is based on commodities, which have seen lower demand and lower prices.
South Africa also has its own problems, some of which are structural from the past, some beyond our control and some inside of our control, he said, citing the electricity supply problems as an example.
Government is serious in its effort to understand the challenges and to bring South Africans to understand the current circumstances and resulting challenges, he said.
The upcoming State of the Nation Address will show that government is working hard behind the scenes to steer South Africa in a different direction and create a more optimism in the country and the economy, he said.
Numbers may change
If, in these circumstances, “the numbers have to change, then the numbers will have to change”. Government has to take account of the changed circumstances since the medium-term budget statement and tailor its income and expenditure accordingly.
Zuma not to blame for everything
In reponse to a question about a lack of faith in pres. Jacob Zuma, which affects the value of the rand, Gordhan referred to a column by political analyst Steven Friedman stating one individual cannot be blamed for everything. Gordhan said current economic circumstances are very complex and the world is economically “in a terrible place”, while South Africa also has its own challenges.
The rand does not operate on the actions of an individual, but is influenced by a wide range of factors, he said.
Gordhan said South Africa is not moving towards a recession. He referred to a recent World Bank forecast of 1.4%-1.6% growth in the local economy over the next three years and said: “We are growing, but we are not growing fast enough, and we are not growing inclusively enough.” Government is focused on ways to increase growth and ensure that it addresses poverty, unemployment and inequality.
He said he would meet with the Reserve Bank to ensure decisions about monetary policy were mindful of growth and employment.
Rand a shock absorber
Grodhan said the rand is a free floating currency and one of the highest traded emerging economy currencies. It is also a shock absorber in the economy that reflects local and international sentiments at times, he said. “But what we don’t want is the flashes and spikes and volatility that we saw on Sunday and Monday as a result of decisions in one part of the world that have still not been explained.”
The extreme negativity towards emerging markets should be reversed, he said.
Gordhan said the expenditure on the nuclear build programme will be contained in the budget, but repeated that it will be within government’s fixed fiscal envelope.
On South African Airways (SAA), Gordhan said National Treasury sat down with management of the embattled airline every week to assist with its cash management. He said SAA has not utilised R2 billion of its R14 billion government guarantee. This comes as Citi Bank, on December 24, cancelled SAA’s R250 million short-term banking facility, putting severe pressure on SAA’s liquidity.
Gordhan would not commit to a timeline for the appointment of a permanent SAA board.
He said the inter-ministerial committee dealing with the current drought has been at work since last year and has met again a few days ago. Radebe said resources have been re-allocated to provide for measures to deal with the drought and education. This will be revealed in the budget, he said.
Radebe said over and above the R10 billion allocated to the National Student Financial Aid Scheme (NSFAS) in the budget, a further R2.3 billion has now been allocated to fund government’s instruction to universities to keep tuition fees unchanged from the previous year.
A further R2.5 billion was reprioritized for NSFAS in the 2016/17 financial year to enable it to assist 71 753 students who qualified for assistance, but were, over the last three academic years, not funded at all, or only partially funded. This would enable these students to continue their studies.
Over and above this a further R2 billion will be allocated to NSFAS in 2016/17 to support unfunded and under-funded students still at university, to complete their studies.
Pres. Jacob Zuma has on Thursday also announced a commission of inquiry into higher education to find lasting solutions to the funding of tertiary education.