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UPDATE 2-South Africa's Gigaba to cut budget as recession bites
June 15, 2017 / 11:55 AM / 3 months ago

UPDATE 2-South Africa's Gigaba to cut budget as recession bites

* Gigaba says “hard decisions to be made” on economy

* Says country may not hit 1.3 pct growth forecast for 2017

* Recession, unemployment pile pressure on Zuma

* Govt lacks “political capital” to add taxes -analyst (Adds Gigaba, analyst quotes, details)

By Mfuneko Toyana

PRETORIA, June 15 (Reuters) - South Africa’s Finance Minister Malusi Gigaba said on Thursday the Treasury was looking for ways to cut government spending further and reallocate funds to help boost growth while maintaining its fiscal target.

Gigaba, who was appointed as finance minister in March after President Jacob Zuma sacked Pravin Gordhan, a favourite of international investors, is battling a recession in Africa’s most industrialised economy.

“We do realise that there are hard decisions to be made ... that may require that we look at further cuts to government spending and programmes,” Gigaba told a news conference. The Treasury was committed to the fiscal target it announced when the annual budget was adopted in February, he said.

Gigaba said hard economic times were affecting the Treasury’s plan to expand the economy.

“In this context, our 2017 growth projection of 1.3 percent may not be realised,” he said. “This continues the trend of low growth over the last several years, undermining our progress in significantly reducing inequality, unemployment and poverty.”

South Africa entered recession for the first time in eight years, data showed on June 6, putting pressure on the government just as it must cope with credit downgrades and Zuma faces corruption allegations.

Political instability, high unemployment and the ratings downgrades have dented business and consumer confidence in South Africa. Unemployment is at a 14-year high of 27.7 percent.

“We are committed to restoring ... a favourable investment grade rating with a positive outlook as quickly as possible,” Gigaba said, adding that Zuma and several cabinet ministers had met last night to discuss ways to revamp the economy.

Pressure on Zuma, including from within the ruling African National Congress, has risen since a controversial cabinet reshuffle in March that led to downgrades to “junk” status by S&P Global Ratings and Fitch and allegations of influence peddling. Zuma has denied any wrongdoing over the allegations.

Moody’s on Friday lowered South Africa’s rating to the bottom of the investment grade table with a negative outlook, citing the cabinet reshuffle.

A member of the central bank’s monetary policy committee said cutting interest rates was not the answer to dragging South Africa’s economy out of recession because deep economic weakness and political turmoil need to be addressed first.

Nicky Weimar, senior economist at Nedbank, said Gigaba’s actions did not gone far enough and that the government lacked the political capital to introduce taxes as it had “a massive credibility issue” with South Africans.

“The first problem is the lack of specifics in the plan but if they do go further in cutting spending and eliminating wastage that’s a positive,” Weimar said. (Writing by James Macharia Editing by Jeremy Gaunt.)

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