South Africa’s Treasury says recession, falling revenue dent public finances

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CAPE TOWN (Reuters) – South Africa will struggle to finance the public services that form the largest part of its budget due to falling revenues and an economic recession, the National Treasury told lawmakers on Tuesday.

South African bank notes featuring an image of former South African President Nelson Mandela are displayed at an office in Johannesburg, file. REUTERS/Siphiwe Sibeko

Africa’s most industrialised economy slipped into recession in the second quarter for the first time in nearly a decade and faced political uncertainty that caused turmoil in its currency and financial markets over its finance minister.

“The contraction of our public finances is placing tremendous stress on us and our ability to finance public services and this threatens the affordability of planned expenditure,” Treasury’s Director-General Dondo Mogajane told a parliamentary committee.

Mogajane said Treasury was preparing to implement structural and regulatory reforms to enhance growth and would be sticking to the fiscal sustainability promises it made in the February budget. It was not clear when the reforms would be introduced.

President Cyril Ramaphosa last week appointed Tito Mboweni the country’s fourth finance minister in two years, replacing Nhlanhla Nene who admitted to having meetings with the business family at the centre of alleged corruption.

The move to appoint the former governor of the central bank to head Treasury was well received by financial markets, but focus will remain on Ramaphosa’s ability to jumpstart growth, deliver jobs and close the huge budget deficits that have brought the country to the brink of ratings downgrades to junk.

The revenue gap in the 2017/18 fiscal year that runs to end-March ballooned to 50.8 billion rand ($3.6 billion) as the revenue agency missed Treasury’s collection target, putting pressure on government’s already stretched finances.

Treasury warned in September that it may also see shortfall in revenue collection in the current fiscal year.

Mboweni is due to present the medium term budget speech next Wednesday.

($1 = 14.2717 rand)

Reporting by Wendell Roelf; Writing by Mfuneko Toyana; Editing by James Macharia