After years of mismanagement and corruption during the Jacob Zuma presidency, South Africa’s economic recovery will be slower and more painful than expected, a new government forecast shows.
South Africans were hoping that Mr. Zuma’s resignation under heavy pressure in February would spark a new era of higher growth in Africa’s most industrialized economy. But there was mostly bad news in a medium-term budget statement on Wednesday by the new Finance Minister, Tito Mboweni.
After falling into a recession in the first half of this year, South Africa will need three years to regain even a modest growth rate of 2.3 per cent, the budget predicted.
The growth forecast for this year has been slashed from 1.5 per cent to just 0.7 per cent. Because of population growth, this means another year of declining per-capita incomes at a time when there is already widespread anger at high unemployment and sharp inequality. South Africa needs a growth rate of more than 5 per cent to have any hope of chipping away at its 27-per-cent jobless rate, according to government planners.
Tax revenue will be much smaller than the amounts forecast in the previous budget in February, leading to rising deficits and higher debt over the next three years, Mr. Mboweni said. This will keep South Africa on the edge of another potential credit downgrade that could push it deeper into “junk” status.
South Africa’s currency, the rand, lost about 2 per cent of its value on Wednesday as investors reacted to the declining revenue collection and slumping growth.
The budget deficit is now projected to rise to 4 per cent of GDP in the current fiscal year, compared with a forecast of 3.6 per cent earlier this year. The deficit will rise further to 4.2 per cent in the following two years, pushing the government’s overall debt to 59 per cent of GDP by the end of 2022, compared with 50.7 per cent last year.
South Africa’s growth has been “significantly slower” than other developing countries over the past decade, Mr. Mboweni acknowledged in his budget speech.
“For ordinary South Africans, it has become a difficult time,” he said. “Unemployment is unacceptably high. Poor services and corruption have hit the poor the hardest.”
Without mentioning Mr. Zuma by name, the Finance Minister documented some of the worst damages of the Zuma presidency over the past nine years. The South African Revenue Service, which lost key staff and enforcement capacity under Mr. Zuma, now requires an “urgent fix,” he said. State-owned enterprises, including the electricity utility, have been weakened by corruption and rising debts, forcing the government to provide costly bailouts and big increases in electricity prices.
“Poor governance – reflected in inefficiency, corruption and financial mismanagement – reduces the impact of spending and increases pressure on the budget,” Mr. Mboweni said.
He hinted at the possible privatization of state-owned South African Airways, which will receive another bailout of 5-billion rand (about $448-million) in the current year. “SAA is still loss-making and even more radical measures need to be undertaken,” he said.
“There should be no holy cows … Our current challenges with state-owned companies present an opportunity to demolish the walls that exist between the private and public sectors.”
Of the three leading credit-rating agencies, only Moody’s is still rating South Africa at investment grade. The risk of a downgrade by Moody’s next year, which would trigger capital outflows, is now “much higher,” according to an analysis by London-based Capital Economics.
The Minerals Council of South Africa, representing the mining industry, praised the Finance Minister for his “honesty and frankness about the depth of the economic crisis.” It said he “showed some courage in acknowledging the broken state of so many South African institutions, including the state-owned enterprises.”