Bloomberg News

Europe’s Debt Crisis Undermines Budget Plans, Gordhan Says

October 25, 2011

(Updates with comments from Gordhan starting in second paragraph.)

Oct. 25 (Bloomberg) -- Europe’s spreading debt crisis is harming South Africa’s economy and undermining the government’s plans to rein in the budget deficit, Finance Minister Pravin Gordhan said.

“We hope that the European leadership recognizes that there is a huge expectation” that they address their debt issues, Gordhan said in an interview in Cape Town today after the release of his mid-term budget. “A lack of decisiveness and boldness in tackling their issues is actually having a negative effect not just in Europe, but is starting to have an impact on economies like ours.”

European leaders are due to meet tomorrow to discuss a revamped euro-area bailout package. Elements of the blueprint may include expanding the reach of the 440 billion-euro ($611 billion) European Financial Stability Facility by turning it into a bond insurer and setting up vehicles to raise outside funds, possibly alongside the International Monetary Fund, and a bank-recapitalization strategy.

Gordhan cut the forecast for South Africa’s economic growth this year to 3.1 percent from 3.4 percent in the February budget and lowered next year’s estimate to 3.4 percent from 4.1 percent, saying the revised targets were contingent on an orderly resolution of Europe’s problems. Europe buys about a third of manufactured exports from Africa’s biggest economy.

The National Treasury delayed plans to rein in the budget deficit because of the slowdown. It forecast the shortfall will widen to 5.5 percent of gross domestic product in the year through March 2012, from a revised 4.6 percent last year.

Not Bad

The deficit is expected to narrow to 5.2 percent of GDP in fiscal 2012 and 4.5 percent the following year. In the February budget, the Treasury forecast an unchanged deficit of 5.3 percent for the current fiscal year, 4.8 percent in 2012/13 and 3.8 percent the year after that. The growth and deficit revisions are in line with the median estimate of seven economists surveyed by Bloomberg.

“What the current times are teaching us is that you have to be agile and adaptable,” Gordhan said. The government has to keep “playing a supportive role to growth, whatever the circumstance. Even with all the challenges we have, 3.1 percent growth overall is not bad.”

--Editors: Gordon Bell, Nasreen Seria

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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