National Treasury will probably raise projections for economic growth this year in its October mid-term budget as the country overcomes governance and financial problems that have lowered confidence, said Finance Minister Nhlanhla Nene.
Newly appointed President Cyril Ramaphosa reappointed Nene to the role last month. When former leader Jacob Zuma fired him and replaced him with a Des van Rooyen in 2015, the move triggered a sell-off in the rand and bonds.
Policy uncertainty and state graft concerns saw Fitch Ratings and S&P Global Ratings lower their assessments of the nation’s debt to junk. The economy slumped into a recession in 2017 and has mounted a fragile recovery since.
The economy is forecast to expand 1.5% this year, compared with the previous projection of 1.1% and an estimated 1% in 2017, National Treasury said in its 2018 budget review on February 21. Growth will probably accelerate to 2.1% in 2020 as measures aimed at creating policy certainty and attracting investment pay off, it said.
“Prospects look good for an improvement in growth forecasts,” Nene told reporters east of Pretoria on Monday.
The government will from April 1 raise value-added tax for the first time since 1993 as part of measures to stabilise debt and prevent a third junk credit rating. Higher taxes will raise an additional R36bn in the year through March 2019 and be coupled with budget cuts totalling R85bn over three years.
The funds will go toward plugging a revenue shortfall estimated at R48.2bn for this year. Concerns about corruption and poor governance, increased tax avoidance and administrative problems at the nation’s tax-collection agency have contributed to revenue shortfalls.
The nation has to demonstrate efficiency in spending to raise tax morality, Nene said. If “resources are spent in a responsible manner, they’re able to make a huge difference in our people’s lives”, he said.