S. Africa to accelerate pace of fiscal consolidation: finance minister

South Africa will accelerate the pace of fiscal consolidation and reduce the budget deficit to 2.4 percent by 2018/19 against the background of slow growth, rising debt and higher interest rates, Finance Minister Pravin Gordhan said on Wednesday.

The expenditure ceiling is cut over the next three years by 25 billion rand (about 1.64 billion US dollars), mainly through curtailing personnel spending, Gordhan said in his 2016 budget speech in Parliament.

Fiscal discipline will have to be the order of the day and may contribute to foreign capital flowing back to South Africa, according to his speech.

Tax increases amounting to 18 billion rand (about 1.2 billion dollars) in 2016/17 are proposed, and a further 15 billion rand (about 990 million dollars) a year in 2017/18 and 2018/19, he said.

The minister announced the allocation of an additional 16 billion rand (about one billion dollars) to higher education over the next three years, funded through reprioritisation of expenditure plans.

Taking into account projected increases in the cost of living, 11.5 billion rand (about 7.57 billion dollars) is added to social grant allocations over the next three years, he said.

Funds have been reprioritised to respond to the impact of the drought on the farming sector and water-stressed communities, according to Gordhan.

In support of growth and development, these initiatives are also aimed at enabling and mobilising the private sector and civil society capacity, he said.

"The past year has seen a deterioration in the global economy. In our own region, weaker business confidence coincides with a severe drought, bringing with it rising prices and threats to water supply in many areas," Gordhan said.

"In addition we are obliged to confront the impact of slow growth on our public finances, while continuing to respond to the expectations of citizens and communities for improved education, reliable local services and responsive public administration," he said.

The Finance Ministry currently expects growth in the South African economy to be just 0.9 per cent this year, after 1.3 per cent in 2015. This reflects both depressed global conditions and the impact of the drought.

"Growth rates of below one percent fall short of what we need to create employment and reduce poverty and inequality," Gordhan said.

But he said South Africa is resilient, committed and resourceful.

"We know how to turn adversity into opportunity," he said while providing indicators that an economic turnaround is possible.

Business services, tourism and communication services continued to expand over the past year, contributing positively to job creation, he said.

While overall agricultural output has declined under severe drought conditions, there has been strong growth in several export products: including nuts and berries, grapes and both deciduous and citrus fruits, according to the minister.

Overall export growth by volume was over nine percent last year, and will continue to benefit from the competitiveness of the rand, he said.

South African exports to the rest of Africa now exceed 300 billion rand (19.74 billion dollars) a year, up from about 230 billion rand (about 15 billion dollars) just three years ago, the minister said.

Retail trade data for the last quarter of 2015 indicate growth of over four percent in real terms, signalling that consumer spending remains buoyant despite declining confidence, he said.

Investments amounting to over 20 billion rand (about 1.3 billion dollars) have recently been announced in the automotive sector, Gordhan added.

"We have avoided reckless policies which might have dragged us into recession or reversed the capital flows we need. We have a sound macroeconomic and fiscal framework, and the will work together for faster and inclusive growth," he said. Enditem