World News | Weak Growth in China and US Interest Rates Seriously Impact S African Economy: Finance Minister Godongwana

Johannesburg, Nov 1 (PTI) Weak growth in China and the risk posed by the high US interest rates indicate a "less supportive" global economic environment for South Africa's growth prospects, Finance Minister Enoch Godongwana said on Wednesday as he tabled the mid-term budget in Parliament.

Delivering the mid-term budget speech, Godongwana said the economic outlook over the medium term remains weak, reflecting the cumulative effect of unprecedented electricity blackout; the vandalised public transport sector, especially rail services; high inflation; rising borrowing costs; and a weaker global environment.

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“The weaker growth outlook for China, South Africa's largest trading partner; the lower commodity prices; and the risk that the US interest rates will remain higher for longer means the global economic environment is less supportive of South Africa's growth prospects,” Godongwana said.

He said the projected growth of an average of 1.4 per cent from 2024 to 2026 was not sufficient to achieve the desired levels of development, but there were signs of resilience in the South African economy as real Gross Domestic Product, a measure of economic performance, was now above pre-pandemic levels.

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In the first half of the year, the economy grew by 0.9 per cent despite record levels of load shedding, while the tourism sector grew more than 70 per cent in the period, driven by the arrival of more than 5.4 million international tourists, he said.

“Unfortunately, since February, the risks to the economy that we warned about, including the decline in global commodity prices that granted us substantial revenue last year, elevated inflation and the depreciation of the Rand have materialised," he said.

"As a result, our public finances are significantly weaker,” the minister said, blaming this on lower revenue performance, higher public service wage bill costs and higher debt-service costs.

“These rising annual budget deficits have reached an extent where the government will have to borrow an average of R 553 billion per year over the medium term. We now expect gross government debt to reach 77 per cent of GDP by 2025/26. This is higher than the level we forecast in February,” Godongwana said.

The minister reaffirmed an earlier commitment by President Cyril Ramaphosa to review and reconfigure the structure and size of the state.

“We propose a strategy of targeted spending adjustments based on policy priorities and a reconfiguration and rationalisation of the state, which includes closing or merging ineffective entities and programmes and enhancing the complementarity of its functions,” he said.

Godongwana also provided details of government plans to assist municipalities and state-owned enterprises that have huge debt burdens, saying that while relief will be provided, they would also be expected to put in place measures to ensure financial stability in future.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)