The South African economy will over the next three years grow by a moderate 1.6%, the National Treasury projects.
The prediction is contained in the 2022 Medium Term Budget Policy Statement (MTBPS) tabled by Finance Minister Enoch Godongwana before the National Assembly at the Cape Town City Hall on Wednesday.
Over the same period, the National Treasury anticipates the country’s economy to shrink over the next three years, saying South Africa’s “economic growth levels remain low and insufficient to tackle high poverty and unemployment”.
The department said the country’s broad recovery from the COVID-19-induced crisis of 2020 was supported by higher global commodity prices, which improved export and fiscal revenues.
During this period, it said, real gross domestic product (GDP) growth recovered to 4.9% in 2021 from a low base following a contraction of 6.3% in 2020. In this regard, Treasury said recovery was hampered by slow implementation of economic reforms and a series of shocks, including the domestic riots and looting in July 2021, historic flooding in April 2022 and escalating power cuts.
While the 2022 Budget in February projected economic growth of 2.1% this year, the Treasury in the MTBPS revised this down to 1.9%.
“GDP growth is expected to average 1.6% over the medium term. The global outlook is also becoming less favourable, with a broad slowdown marked by higher levels of volatility. Global inflation has risen sharply as a result of supply chain shortages exacerbated by the Russia-Ukraine war.
“As central banks take necessary action to combat inflation by raising interest rates, developing countries are experiencing tightening financial conditions, constraining investment and household demand. Slower growth in China is having significant consequences for commodity exporting economies.
To sustain the gains from prudent fiscal policies and improve resilience to shocks, the economy needs rapid, job-creating growth, said the department.
On this front, the document states that government’s growth strategy would in the medium-term focuses on three areas.
Ensuring clear and stable macroeconomic policies that emphasise price stability and sustainable public finances would be the first.
Next would be to implement growth-enhancing reforms, including addressing the shortage of electricity and dealing with long-running structural constraints in the economy.
Thirdly, enhancing key enablers for growth and state capability, such as fighting crime and corruption and improving municipal services. The fiscal framework prioritises additional funding for safety and security, and Infrastructure, said the Treasury.
Inadequate electricity supply, said the department was “the most urgent problem facing the economy”.
“A decade and a half of this binding energy constraint has discouraged investment and weighed on economic growth and job creation. Increasing the supply and reliability of energy is a key part of economic growth reforms, and new measures to achieve this include greater scope for private-sector generation of electricity.
“At the same time, government needs to address infrastructure backlogs, accelerate the reconstruction of damaged structures and installations, fight crime and corruption, and improve the education and health systems,” said the department.
Source: South African Government News Agency