The finance minister in South Africa, Pravin Gordhan, said that their economy is “in crisis.”
He made the comments ahead of the Budget speech in which the country’s growth forecast has been cut from 1.7% in 2015 to 0.9% in 2016.
He agreed that South Africa’s economy struggles with issues such as 25% unemployment increase in poverty and shrinking growth.
The rand, which is South Africa’s currency, fell. It has been equally declining in the 5 years that have passed.
It fell by 2.25% thus making one rand to be worth $ 0.0639.
While providing the briefing before the budget speech is availed, Mr. Gordhan added that it is true that they are in an economic crisis.
The Parliament announced measures that would help prevent the country from falling into recession as well as make peace with the rating agencies that have been threatening to downgrade the country to the junk status. This would be no good to them because the borrowing costs of the country would go up.
Some these measures as revealed by Mr. Gordhan are: freeze on civil service jobs, reduce government spending and also moderate tax rises.
The taxes usually have an effect on fuel, alcohol, property sales, tobacco, sugary drinks and gains in capital.
The finance minister was expected to make public on any plans of privatizing government assets but fell short of that. He however, said that they were evaluating the loss making assets so as to merge them. The South African Airways would be merged with SA Express airline.
Some groups within the African National Congress that is in leadership have for a long time declined to support privatization.
Mr. Gordhan added that they can’t borrow beyond what they can pay or spend money that they lack. Instead, the available option is to ignite growth and create revenue.
The director at Fidelity International, Currie Maike, said that she was not confident the measures the government has put in place would appease the rating agencies not to downgrade the country to the junk status because they have already provided the warning. In supporting her doubt over the possibility of the measures working, she said the VAT has not changed for two decades because it has remained at 14% while the income tax that the minister hopes will moderate the struggling economy keeps on rising in the midst of testing economic backdrop.
It remains to be seen if what the government has put in place will be able to appease the rating agencies.
She also questioned the effectiveness of the decision to reduce the government spending.
As much as South Africa is rich in mineral resources, it is faced with global prices of commodity. The farmers have also had to tackle the worst drought ever in the country.
Last year, President Zuma replaced the respected finance minister Nene Nhlanhla with his ally as well as backbencher, David Van Rooyen thus shocking the nation and the business community.
The markets later on started to dim, while the foreign investors refrained and the members of his ANC party raised complaints.
Four days later, Mr. Zuma made changes and re-appointed Mr. Gordhan who had worked as the finance for 5 years till 2014.