South Africa's fiscal deficit will spike to 7.6 percent of output this year in the face of high public spending to boost growth and create jobs, the finance minister announced in his mid-term budget Tuesday. In his maiden budget, Finance Minister Pravin Gordhan prioritised job creation, satisfying a key demand of leftist allies whose mounting pressure to shift policy has raised concerns over the country's economic path.
Tax revenues plunged 70.3 billion rand (nine billion US Dollars) from February budget forecasts and Gordhan warned government will have to do "more with less", with strict cost-cutting measures to be put in place.
"Creating jobs is the country's greatest economic challenge. This should inform all policy choices," reads the budget document. The economy, forecast to grow at 1.2 percent, entered its first recession in 17 years, contracting two percent in the first half of 2009 and is expected to recover in 2010 with a growth of 1.5 percent rising to 3.2 percent by 2012.
The mid-term budget framework is the first by President Jacob Zuma's government, elected in April on the back of promises to prioritise jobs, health, education, rural development and crime. The government's macro-economic policy has come under increasing attack from the Congress of South African Trade Unions (Cosatu), a major backer of Zuma in the run-up to the election and alliance partner of the ruling African National Congress.
While emphasising the need to maintain prudent fiscal policy, Gordhan said government would need to "do things differently." "South Africa needs to take serious stock ... of what its current economic model is. There is no doubt, it doesn't give us enough jobs, he said, adding the yawning gap between rich and poor had to be narrowed. "We have got to transform our economy."
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