South Africa cuts growth forecast, widens budget gap

CAPE TOWN: South Africa cut its growth forecasts and predicted a wider budget deficit on Thursday, citing fallout from the worst mining strikes since apartheid and a lack of infrastructure investment.

But Finance Minister Pravin Gordhan sought to allay fears of a meltdown in Africa's biggest economy, saying it remained on a firmer footing than most of the developed world and dismissing downgrades by Moody's and S&P as "inappropriate".

The National Treasury cut the 2012 growth forecast to 2.5 percent from the 2.7 percent of earlier in the year, citing structural constraints and the impact of nearly three months of strikes in the platinum and gold mines.

In a document outlining the budget for the next three fiscal years, it raised the projected 2012/13 budget deficit to 4.8 percent of GDP, in line with a Reuters poll of economists.

The Treasury had previously forecast a deficit of 4.6 percent.

Gordhan stressed that the widening deficit was not due to overspending, but was a result of slower economic growth and its impact on revenue collection.

"Owing to weaker economic conditions, anticipated tax revenue for 2012/13 has been revised downwards, leading to a higher-than-projected consolidated budget deficit in the current fiscal year," Gordhan said.

Offshore investors have been worried that three months of mining labour unrest would put pressure on Gordhan to increase spending to try and ease some of the social tensions that led The Economist magazine to run a cover story last week entitled "Cry the Beloved Country - South Africa's sad decline".

But a combative Gordhan stressed Pretoria would not deviate from its current spending plans and vowed to keep total debt at a peak of 39 percent of GDP by 2015/16.

He then departed from his script to take a swipe at external criticism of the ruling ANC and its handling of the economy, especially in the wake of the police killing of 34 strikers at Lonmin's Marikana platinum mine.

"Just for the sceptics amongst us: 39 percent. Not the 90 percent of European countries or the 200 percent of Japan or the 120 percent of Italy. Thirty-nine percent," Gordhan told parliament, comparing debt levels.

The rand firmed slightly to 8.695 against the dollar from 8.715 when he started speaking.

"There was a bit of concern that the minister might have to increase expenditure given the weaker economic growth and more political pressure, but he has stood his ground," said Christie Viljoen of NKC Independent Economists.