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South African Finance Minister Pravin Gordhan said Europe’s debt crisis threatens to curtail tax revenue in Africa’s biggest economy and may force a review of spending plans.
“There could be further negative impacts on revenue collection in the coming year if Europe does not sort out its problems,” Gordhan told lawmakers in Cape Town today. “The European crisis and the fact there are lower growth patterns around the world today does mean that we must have lower expectations about what the budget could look like.”
Slower growth in Europe, where a debt crisis that began more than two years ago may lead to Greece leaving the monetary union, is curbing demand from a region that buys about a fifth of South African exports. In his budget speech on Feb. 22, Gordhan cut his growth forecast this year to 2.7 percent from an earlier estimate of 3.4 percent.
There is no evidence that Europe will solve its problems in the near future, and South Africa has to restructure its own economy to address structural constraints, Gordhan said.
“We wanted to change the composition of spending,” he said. “We have started that process, but there is a long way to go. Investment in infrastructure and in other capital projects still doesn’t get as much money as it requires, and even when we do have that money, regrettably we don’t spend it as effectively as we should.”
Lawmakers are due to vote on whether to approve the budget later today. While the Democratic Alliance, the main opposition party, has said it will oppose funding allocations, it cannot block them because the ruling African National Congress controls almost two-thirds of the seats in Parliament.
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