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Tax hikes, state spending cuts forecast for medium-term budget

Tuesday, 13 October 2015   (0 Comments)
Posted by: Author: eNCA
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Author: eNCA

Finance Minister Nhlanhla Nene is going to have to cut his coat according to his cloth when he tables his medium-term budget policy statement (mini budget) in Parliament next week.

In the face of serial growth disappointments and the uncertain global outlook, economists are expecting Mr Nene to table an austerity budget that raises taxes and cuts government expenditure.

Without such measures, SA will be unable to stick to its debt and deficit reduction targets on which its creditworthiness depends.

The International Monetary Fund (IMF) has urged countries to take measures to lift their growth rates as global economic prospects continue to weaken.

During its annual meetings held in Lima, Peru, at the weekend, the IMF noted that, as a result of China’s shift to a new growth model and impending US interest rates hikes, developing countries were being hit by declining commodity prices, reduced capital inflows, currency depreciation and rising market volatility.

Mr Nene and South African Reserve Bank governor Lesetja Kganyago attended the Peru meeting. Business Day was unable to obtain comment from either yesterday as they were travelling.

Meanwhile, the global "spillovers” were larger than anticipated, weakening emerging market growth.

As a result, the IMF downgraded its global growth forecast to 3.1% for this year compared to the 3.4% achieved last year.

Worst affected are commodity exporting emerging market countries such as SA. The emerging market slowdown is rebounding on the developed world, where the IMF considers the main risk to be that already low growth will slow anew, particularly if global demand falters further and supply constraints are not removed.

"While these uncertainties and transitions may look daunting, I believe they can be managed with the right mix of policies to support demand, strengthen financial stability and implement structural reforms,” IMF MD Christine Lagarde said in her address.

She noted that emerging market countries had helped pull the global economy back from the brink of another Great Depression a few years ago; they had accounted for almost 80% of global growth over the past five years; and they now generated more than half of global output.

The remedy, she said, was for every country to implement "specific policy upgrades”.

The IMF has downgraded SA’s growth outlook to 1.4% this year, 1.3% next year and 2.0% in 2017.

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