Deficit to be kept in check

Image courtesy stock.xchnge

Image courtesy stock.xchnge

South Africa’s financial position is not the worst in the world but it is not the best either.

There is only so much money that can be spent and government does not want to see the deficit increase beyond control.

In his 2014 Budget Speech, Finance Minister Pravin Gordhan made it clear that the expenditure ceiling set by the current administration will stay in place.

Rather, government has opted to work within this framework and reallocate the money it has at its disposal.

Speaking to the media before his presentation in Parliament, Gordhan said that the budget has been created for three years, not one.

While the next government following the elections can adjust it as they see fit, the ANC will ensure policy continuation, he said.
“Fellow South Africans, let me be frank with you – the world economy is still in difficulty, and global institutions are struggling to find their way,” Gordhan said in his prepared speech.

“This Budget lays the foundation for the structural reforms envisaged over the next term of this Government…

“Our present circumstances oblige us to live and spend modestly and keep a careful balance between social expenditure and support for growth.”

As a result, Treasury will allocate resources as is needed. Where underspending takes place, money will be shifted away until local capacity can be created.

This means that government will curb the amount of money it needs to borrow in order to focus on infrastructure spending and its job creation programmes.

Treasury expects the current account deficit to come in at 4% of GDP for the current financial year, before narrowing to 2.8% over the medium term.

“In a period of weak economic growth, the sustainability of the public finances is inevitably tested. Over the last five years government has borrowed more than R1 trillion. Rising global interest rates make it increasingly costly for government to borrow.

“Lower commodity prices dampen the growth of revenues. A weak rand raises the price of capital goods that government needs for its investment programme, while inflation raises the amount we must pay for goods, services and wages,” the minister said in his speech.




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