Oct 28th - Higher borrowing ‘right’ for South Africa

By Richard Lapper in Johannesburg

Published: October 28 2009 01:40 | Last updated: October 28 2009 01:40

South Africa’s finance minister outlined ambitious new borrowing plans on Tuesday as part of efforts to help Africa’s largest economy out of recession and meet election commitments on job creation and social welfare.

Unveiling his first mid-term budget statement, Pravin Gordhan told South Africa’s parliament that the government planned to raise R640bn ($83bn, €56bn, £51bn) in debt over the next four years. “Higher borrowing is the right thing to do, in these times,” he said.

Mr Gordhan, the former head of the country’s tax administration, took over in May after president Jacob Zuma’s triumph at the polls. He said he expected the public sector borrowing requirement, which includes funding requirements for municipalities and state enterprises, to rise to 11.8 per cent of gross domestic product in the current fiscal year that ends in March.

Government debt would rise from 23 per cent of GDP this year to 41 per cent by March 2013, he said, and interest payments will nearly double to R100bn.

South Africa’s economy is expected to contract this year by nearly 2 per cent, largely because of a sharp deterioration in global trade and commodity prices.

Mr Gordhan described the fiscal response as “one of the largest in the world”.

With the slowdown depressing tax revenues, the deficit is set to rise from the 3.8 per cent predicted in February to a new level of 7.6 per cent. Spending is expected to rise by R14bn compared with the amount estimated earlier.

However, Mr Gordhan also promised that the government would clamp down on corruption and waste.

“We have to achieve more with less,” Mr Gordhan said. “We cannot spend on wasteful extravagances and golf days. We cannot tolerate unnecessary bureaucratic structures.”

South Africa entered recession with relatively low levels of indebtedness and in fiscal health, he said, pointing to the fact it had a budget surplus only two years ago.

Whereas many governments had spent huge sums to rescue banks, South Africa’s spending growth was “driven by real physical investment”.

Much of the planned spending on roads, railways, power stations, housing and water is geared to improving the country’s preparedness to host next year’s football World Cup.

The scale of the deficit was not a surprise to markets: investors had already marked down local bond prices on forecasts in recent weeks.

But some analysts said the scale of proposed borrowing left the government very little room to adjust its fiscal plans further.

Separately, Mr Gordhan announced that South Africa’s exchange controls were to be relaxed, partly in an effort to ease upward pressure on the rand.

Source : http://www.ft.com/cms/s/0/1e4ebe22-c350-11de-8eca-00144feab49a,dwp_uuid=c0df00e2-2037-11dd-80b4-000077b07658.html