South Africa, which has seen its currency slump 10 percent since May, must cut its fiscal deficit and resolve labor disputes in the mining industry to make the economy less vulnerable to external shocks, Finance Minister Pravin Gordhan said.
The rand’s plunge and slowing economic growth emphasized the need to insulate the country from global financial turmoil through policies that promote growth and investment, including a “speedy resolution” to challenges facing miners, Gordhan wrote in the Johannesburg-based Sunday Times.
South Africa’s currency weakened since the beginning of May amid speculation the Federal Reserve may reduce monetary stimulus as the U.S. economy recovers. South Africa’s economy expanded at the slowest pace since a 2009 recession in the first quarter as labor unrest in the mining industry and lower commodity prices cut output. The government has appointed a task team headed by Deputy President Kgalema Motlanthe to mediate between labor unions and employers.
“The market reaction to any tapering-off of quantitative easing creates difficulties for national responses to the global economic crisis,” Gordhan wrote. “Any failure by business, government and labor to act together and decisively will have far-reaching negative consequences.”
While the government’s economic blueprint, the National Development Plan, focuses on job creation and growth in the long term, it must be complemented by short-term policies to bring down the deficit and restore confidence in the mining industry, Gordhan said. Improving the quality of government spending and reducing policy uncertainty are also imperatives, he said.
Mining accounts for more than 50 percent of South Africa’s exports and 6 percent of gross domestic product, according to government data. The central bank cut its forecast on May 23 for GDP growth this year to 2.4 percent, from 2.7 percent. The economy expanded 2.5 percent in 2012.
“The government is ready to take tough decisions to ensure that South Africa remains an attractive investment destination,” Gordhan said. “We will build up our buffers to protect South Africa from further shocks.”
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