Finance Minister Nhlanhla Nene has to use his budget speech next week to restore investor confidence as the government’s policy proposals seem be more populist than business friendly.
This is according to a report released by Nedbank economists Nicky Weimar‚ Dennis Dykes and Isaac Matshego yesterday.
They expected the Treasury to stick fairly closely to fiscal deficit targets announced in the medium-term budget policy statement in October.
Treasury forecasts the budget deficit to narrow gradually from levels of about 4% of the gross domestic product to 2.5% by 2017-18.
The economists said‚ however‚ that the government had struggled to reduce the deficit to more sustainable levels of below 3% within the budgeting period‚ repeatedly moving the target out by another year since 2011.
Standard & Poor’s last year downgraded South Africa’s sovereign credit rating to one level above junk status.
Rating agencies had warned South Africa to narrow the gap between government spending and revenue‚ and address power shortages and unemployment to avoid further downgrades. Rating downgrades raise the cost of borrowing.
The economists said underlying concern about fiscal sustainability would probably continue to simmer among investors‚ given a large social spending burden resting on a narrow tax base.
This in an economy where the constraints on competitiveness remained significant and only a few new jobs had been created.