South Africa Can ‘Cushion’ Economy If Slump Persists

Feb. 12 (Bloomberg) -- South Africa’s government has the “space to cushion the economy” if a slowdown in economic growth persists, said Kuben Naidoo, head of the National Treasury’s budget office.

“We have a lot of room if growth is low for a longer time,” Naidoo told lawmakers in Cape Town today. “We will continue with a counter cyclical fiscal policy, however long it takes for the economy to recover.”

Finance Minister Trevor Manuel yesterday cut his economic growth forecast for this year to 1.2 percent, the lowest since 1998 and down from 3 percent estimated in October. Falling corporate profits and a slump in consumer spending will cut tax revenue, pushing the budget deficit to 3.8 percent of gross domestic product in the year through March 2010 from an estimated 1 percent this year.

The government doesn’t want the ratio of debt to GDP to “deteriorate too rapidly,” Naidoo said. If the government needs to run a wider deficit and raise borrowing, it plans to return to “safer” levels of debt once the economy recovers, he added.

South Africa’s debt will rise to 26 percent of GDP in the year through March 2010, from about 23 percent in the current fiscal year, according to the Treasury’s Budget Review published yesterday. It will reach 27 percent in the 2011 fiscal year, the Treasury forecast.