UPDATE 2-S.Africa budget deficit widens, prompts spending cap
* Sluggish economic growth hitting revenue
* Strikes to hit output in 2012
* Gordhan vows to keep spending in check
* Slams credit downgrades as inappropriate
By Stella Mapenzauswa
CAPE TOWN, Oct 25 (Reuters) - South Africa cut its growth forecasts and predicted a wider budget deficit on Thursday, citing fallout from the worst mining strikes since apartheid, but Finance Minister Pravin Gordhan promised to cap spending to assuage bond investors' concerns.
He also dismissed talk of a crisis in Africa's biggest economy, where 100,000 workers have downed tools in the last three months, saying the country was on a firmer financial footing than most developed countries.
The Treasury cut its 2012 growth forecast to 2.5 percent from the 2.7 percent of earlier in the year, reflecting infrastructure bottlenecks and the impact of nearly three months of strikes in the platinum and gold mines.
In its outline for the next three fiscal years, it also raised the projected 2012/13 budget deficit to 4.8 percent of GDP, in line with a Reuters poll of economists. The Treasury had previously forecast a deficit of 4.6 percent.
Gordhan stressed that the widening deficit - which follows a current account deficit that ballooned to a nearly four-year high in the second quarter - was a result of slower economic growth and not government profligacy.
"There will be no additions to the overall spending level. Let me repeat that: there will be no additions to the overall spending level," he told parliament, raising his arms for emphasis and deviating from his scripted speech.
Offshore investors have been worried that the mining unrest would put pressure on Gordhan to increase spending to ease the social tensions that led The Economist magazine to run a cover story last week entitled "Cry the Beloved Country - South Africa's sad decline".
But a combative Gordhan stressed Pretoria would not deviate from its spending plans - even after the national trauma of police killing of 34 strikers at Lonmin's Marikana platinum mine - and vowed to keep total debt at a peak of 39 percent of GDP.
"Just for the sceptics amongst us: 39 percent," he said, again abandoning his script. "Not the 90 percent of European countries or the 200 percent of Japan or the 120 percent of Italy. Thirty-nine percent."
Recent downgrades by Moody's and S&P were "inappropriate", he said.
The rand rand initially firmed slightly against the dollar after Gordhan's comments, before relinquishing some of the gains in line with a weaker euro.
GORDHAN STANDS GROUND ON SPENDING
"There was a bit of concern that the minister might have to increase expenditure given the weaker economic growth and more political pressure, but he has stood his ground," said Christie Viljoen of NKC Independent Economists.
The rand plunged to a 3-1/2 low against the dollar earlier this month, nearly hitting t he 9 .0 m ark a s investors worried about the impact of the strikes on an economy still trying to shrug off a 2008/09 recession.
"For the manufacturing sector , which has been asking for a weaker rand, this has been a welcome bonus," Gordhan said in a interview with Reuters. "We would be concerned if the rand becomes any weaker - ab out the inflation impact."
About 100,000 workers, mainly in the mines, have downed tools for better pay since August in a wave of strikes that has sparked credit downgrades by ratings agencies Moody's and Standard and Poor's.
Treasury said the strikes, which have hit platinum and gold output, have cost the economy just over 10 billion rand ($1.14 billion) so far, but Gordhan insisted the overall state finances were sound.
"We are not about to fall over any cliff," he said.
Despite his brave face, the Treasury scaled back its growth forecast for 2013 to 3.0 percent from the 3.6 percent seen in February. It expects growth to rise to 4.1 percent by 2015.
The Treasury said inflation would stay within the Reserve Bank's 3-6 percent target band although rising international food prices, higher petrol costs and a weaker exchange rate would cause upward pressure during the second half of 2012.
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