Fiscal prudence ‘good news for investors’

26 October 2011

The South African government is committed to maintaining prudent fiscal policy, which is good news for investors, BoE Private Clients said following Finance Minister Pravin Gordhan’s Medium-Term Budget on Tuesday.

“Given the global backdrop of sovereign risk and the potential for years of slower growth – as austerity and consolidation loom – the value of this commitment cannot be overestimated,” BoE Private Clients economist Madalet Sessions said in a statement.

“Not only did Minister Gordhan highlight the trade-off between government consumption expenditure and infrastructure investment, but he also indicated a clear preference by stating that South Africa had to prioritise public infrastructure spending,” she said.

“He further demonstrated government’s commitment to enhancing the growth potential of the economy by saying that the country had to borrow to invest in infrastructure – not government consumption.”

Gordhan said for the next three years, the National Treasury would aim to moderate spending growth in order to stabilise debt as a percentage of GDP.

“This commitment to prudence and fiscal consolidation over the medium term suggests that SA’s fiscal affairs will continue to stack up well in comparison with developed markets,” said Sessions.

“This prudence should in the long-run pay handsome dividends as the threat of higher taxes and interest rates in the future remain contained.”

Sessions said this would enhance South Africa’s attractiveness as an investment destination.

Sapa