For the sake of “credibility” and to sustain credit rating “breathing space” South Africa could not deviate from its fiscal-consolidation path, Finance Minister Pravin Gordhan stressed on Tuesday, while warning of even “tougher” Budgetary decisions in light of the country’s weak economic and revenue growth.

Speaking to leaders from various chambers commerce at an event hosted in Johannesburg by the South African Chamber of Commerce and Industry, he said that government would stick to the commitments made in February, when a Budget deficit of 3.9% of gross domestic product (GDP) was outlined for 2015/16, before falling to 3.2% in 2016/17, 2.8% in 2017/18 and 2.4% in 2018/19.

“The fiscal consolidation path we have laid out – for our own credibility – is one that we need to stick to. So, if we don’t grow and revenue doesn’t come through to the extent that we anticipate, we might have to make some tougher decisions in terms of government expenditure and how we manage that expenditure.”

Gordhan refused to be drawn, however, on what expenditure items might be cut, indicating only that guidance would be provided in the Medium-Term Budget Policy Statement (MTBPS), which is typically released in October every year. “That’s when we would have to make the judgement call about what the revenue situation is looking like, what’s the expenditure situation looking like and whether we have to make any adjustments to those numbers to stick to the kind of fiscal-consolidation path that we have decided.”

Similarly, the National Treasury would update its growth forecast in the MTBPS, which Gordhan hoped would be better than the 0.1% downward revisions outlined by the International Monetary Fund following its recent Article IV consultation with South Africa, which took place between April 18 and May 4.

In February, the National Treasury forecast that the economy would grow by 0.9% in 2016. However, the economy contracted by 1.2% quarter-on-quarter during the first quarter of 2016 and, despite expectations of a small recovery in the second quarter, few economists expect the country to grow anywhere close to 1% this year.

Gordhan stressed that a return to higher levels of growth would “take time”, and argued that the growth figure alone would not determine the actions taken by the ratings agencies at year-end.

Instead the agencies – which held back from downgrading the country to junk in June – would be looking for “signals” that there was “movement in the right direction”, that growth-supportive reforms and programmes were being implemented and that fiscal promises were being kept.

RECOVERY WON’T HAPPEN OVERNIGHT

“That’s the path that we and our social partners will be focusing on to ensure that we get more breathing space for South Africa for the growth numbers to begin to change over the next 18 months or so. We all accept that it won’t happen overnight, but we need to be seen to be doing the right things  . . . and undertaking the changes that are necessary that create better prospects for growth going forward.”

Some of the specific actions to be taken over the coming months included the implementation of a R1.6-billion fund by business to support small business, as well as the deployment of 150 retired businesspeople to mentor entrepreneurs; the absorption of 40 000 young South Africans as interns at large enterprises; and engagements by leading CEOs with firms in eight key sectors to stimulate investment.

“If we want this economy to grow, if we want this economy to become more stable and if we want to create better prospects for jobs and for the growth of businesses . . . we have to invest our own money in this economy  . . . we can’t sit back and invite investors from elsewhere in the world, when we can’t demonstrate confidence in our own economy,” Gordhan said.

A more supportive “ecosystem” was also required to support entrepreneurs, with Gordhan arguing that South Africa should target the creation of 10-million new businesses to help address the country’s unemployment problem.

“We need the informal sector in South Africa to grow. We need those that have been in the informal sector to formalise themselves into a formal small business sector. We need small businesses to grow into medium-sized businesses. We need medium-sized businesses to start fitting themselves into African and global value chains. That's the hierarchy of business we want to create so that we don’t have a heavy top and a very narrow middle.”