The South African government will probably raise projections for economic growth this year in its October mid-term budget as the country overcomes governance and financial problems that have lowered confidence, Finance Minister Nhlanhla Nene said.
Newly appointed president Cyril Ramaphosa reappointed Nene to the role last month. When former leader Jacob Zuma fired him and replaced him with a little-known lawmaker in 2015, the move triggered a sell-off in the rand and bonds. Policy uncertainty and state graft concerns saw Fitch Ratings Ltd. and S&P Global Ratings lowered their assessments of the nation’s debt to junk. The economy slumped into a recession in 2017 and has mounted a fragile recovery since.
South Africa’s economy is forecast to expand 1.5 percent this year, compared with the previous projection of 1.1 percent and an estimated 1 percent in 2017, National Treasury said in its 2018 budget review on Feb. 21. Growth will probably accelerate to 2.1 percent in 2020 as measures aimed at creating policy certainty and attracting investment pay off, it said.
“Prospects look good for an improvement in growth forecasts,” Nene told reporters east of Pretoria Monday.
The government will from April 1 raise value-added tax for the first time since 1993 as part of measures to stabilize the debt and prevent a third junk credit rating. Higher taxes will raise an additional 36 billion rand ($3 billion) in the year through March 2019 and be coupled with budget cuts totaling 85 billion rand over three years.
The funds will go toward plugging a revenue shortfall estimated at 48.2 billion rand for this yea. Concerns about corruption and poor governance, increased tax avoidance and administrative problems at the nation’s tax-collection agency have contributed to revenue shortfalls.
The nation has to demonstrate efficiency in spending to raise tax morality, Nene said. If “resources are spent in a responsible manner, they’re able to make a huge difference in our people’s lives,” he said.