* Revenue down partly on mine strikes, to weigh on growth
* Government to keep spending under wraps
* Growth to lag that of BRICS peers
* Ratings agency could hold off further downgrades
By Stella Mapenzauswa
CAPE TOWN, Feb 27 Subdued European demand for
its exports forced South Africa to cut its 2013 economic growth
forecast on Wednesday, while missed revenue targets looked to be
creating a wider budget deficit than first thought.
While vowing to keep a lid on overall spending, Finance
Minister Pravin Gordhan committed to more social spending for
South Africa's poorest, many who live in shanty townships and a
are key support base for President Jacob Zuma as he gears up for
general elections early next year.
"This government will not get to the point where we impose
austerity on our people," Gordhan said, alluding to fiscal
tightening measures that have triggered violent protests in
European countries such as Greece.
In his three-year budget tabled to parliament, Gordhan said
the 2013 budget deficit would be 4.6 percent of GDP, a shade
wider than his last forecast in October.
However, the deficit is slightly narrower than economists'
forecasts and a big decline from the 5.2 percent gap projected
This year's shortfall was partly to due reduced tax and
mineral rights revenue from the mining sector, hit by strikes
last year that left more than 50 people dead and shaved 15
billion rand ($1.7 billion) of output from Africa's biggest
The economy had most likely fully absorbed the impact of the
mining strikes, Gordhan told Reuters after his speech.
"If there's enough of a demand pool from China and India in
terms of commodities, if we can get production back to some
level of normality, and therefore exports as well, all of that
will contribute positively to revenue," he said.
But for now, South Africa remains the laggard among its
peers in the BRICS group of leading emerging market economies,
with China expecting growth of 8.2 percent this year, followed
by 5.9 percent for India and 3.5 percent in Brazil.
With growth flatlining in Europe, South Africa's main export
market, Gordhan was forced to cut this year's growth forecast
once again to 2.7 percent - half South Africa's pre-2008
financial crisis average.
The relatively subdued longer-term outlook also means the
economy has little chance of making any in-roads into the
persistent 25 percent unemployment regarded as the main threat
to social stability two decades after the end of apartheid.
"If growth continues along the present trajectory,
substantial spending commitments would require significant
adjustments in revenue and reductions in other areas of
spending," Gordhan said.
Domestic consumer demand, which accounts for about 60
percent of GDP, is likely to remain modest as households
struggle to find jobs while existing debt levels remain high.
Gordhan said the government, still smarting from credit
downgrades from Moody's, Standard & Poor's and Fitch, would keep
a tight grip on its purse strings, with plans to reduce spending
by 10.4 billion rand ($1.2 billion).
"The deficit is there because of the revenue loss that we
have experienced, not because of expenditure," Gordhan said in a
news conference before his speech to parliament.
The projected deficits are unlikely to improve South
Africa's credit ratings, which now stand slightly above the
investment grade cut-off, analysts said.
"Under the circumstances, (the government) probably struck a
reasonable balance given the fiscal constraints and difficult
economic circumstances," Renaissance Capital economist Elna
"Today's budget was ratings negative - on its own it does
not justify further downgrades, but at the same time it also
will not allay the concerns of the ratings agencies sufficiently
to rule out further downgrades down the line."
Gordhan said the government, which has faced a series of
protests against poor basic services in the impoverished
townships, would continue pouring money into infrastructure,
education and the health service.
Spending on social services, which have risen by 11 percent
in the last five years, were seen increasing to 120 billion rand
next year, Gordhan said.
The rand weakened after the budget, and was last at 8.8850
against the dollar, from 8.835 before Gordhan began his address.
Government bonds weakened, weighed down by plans to increase
issuance to 165 billion rand a year over the next three years.
The yield on the benchmark 2026 paper rose nearly
10 basis points to 7.31 percent.
The Treasury would increase bond issuance at its weekly
domestic auctions to about 3 billion rand from the current 2.1
billion rand, Director-General Lungisa Fuzile told Reuters.