January 24, 2018 / 4:29 PM / 3 months ago

South Africa finance minister warns country will feel pain of tough budget

DAVOS, Switzerland (Reuters) - South Africa’s budget has involved making tough decisions to stabilize the country’s debt and the country will feel some pain as a result, its finance minister said on Wednesday.

The South African economy, Africa’s second largest and most industrialized, has slowed to a near standstill.

Finance Minister Malusi Gigaba said the upcoming budget, to be unveiled in the spring, would involve interventions in order to boost confidence and grow the economy, as part of what he described as “a difficult fiscal framework”.

“What I will be doing at the budget will be going to announce the tough decisions to stabilize the debt but reduce the budget deficit,” he said, speaking on the sidelines of the World Economic Forum in Davos.

“We have to announce tough decisions and South Africans will have to bear some pain (as a result) of some of the decisions we are going to have to announce in order to stabilize our debt,” he said. He did not give details of the proposals.

President Jacob Zuma’s reign has been beset by allegations of influence-peddling in government and mismanagement of state-owned enterprises which have dented consumer and business confidence. Zuma has denied allegations that he has allowed his friends to influence the appointment of ministers.

South Africa’s economy grew 2.5 percent in the three months to the end of June, after contracting by 0.6 percent in the first quarter and by 0.3 percent in the final quarter of 2016.

But since South Africa emerged from its 2009 recession, growth has fallen short of the government’s target of five percent, the level economists say is needed to curb unemployment.

RATING

A Moody’s rating review could see South Africa’s rating cut to junk and the country’s bonds ejected from a key index. That could in turn cause capital to flee the country, raising bond yields and pressuring the currency.

“We are certainly going to avoid it. I’m very confident,” Gigaba said when asked about the possibility of a downgrade.

He said ratings agencies had previously expressed concern over political and policy certainty, as well as the government’s commitment to fighting corruption.

Gigaba said these issues had largely been resolved after Cyril Ramaphosa won the race in December to be the new leader of the ruling African National Congress (ANC).

Earlier this month the new ANC leader said South Africa wanted to attract foreign investors to help it kick-start economic growth and will crack down on corruption.

FILE PHOTO: South Africa's Finance Minister Malusi Gigaba poses for a photograph after speaking at the Thomson Reuters economist of the year awards at the Johannesburg Stock Exchange (JSE) offices in Sandton, South Africa, July 13, 2017. REUTERS/Siphiwe Sibeko/File Photo
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