The changing global economic climate was providing new challenges to the fiscal outlook, with the rising burden of public debt reinforcing the importance of ensuring the sustainability of fiscal policy over the period ahead, Finance Minister Nhlanhla Nene said when presenting National Treasury’s Budget Vote on Monday.

“We are entering a new environment – rising global interest rates have increased the cost of servicing our debt, commodity prices have declined and the depreciation of the rand has pushed up inflation. The fiscal space built up in the 2000s has diminished,” he told Parliament.

Affirming that the economy was performing “below its potential”, Nene asserted that to ensure the fiscus remained sustainable, the three principles – counter-cyclicality, debt sustainability and intergenerational fairness – which were the “backbone” of the country’s fiscal stance, would remain in place.

This would see government over the next three years stabilise the growth of public debt and start to rebuild “fiscal space” by remaining within the expenditure limits set in the medium-term expenditure framework.

‘This ceiling means that expenditure will continue to grow and the real value of our social spending will be maintained. But the fiscal limits will be far stronger and the need to ensure value for money and effective allocation of resources even more paramount,” Nene pointed out.

Despite the contained growth in expenditure, government’s budget deficit had remained elevated.

In aggregate, the final outcome of tax revenue for the 2013/14 fiscal year was R899.8-billion, in line with the target set in the National Budget.

However, Nene added that weaker economic growth in the last few years had resulted in lower-than-anticipated revenue.

“The situation is expected to improve over the period ahead, with the budget deficit projected to narrow from 4% in 2014/15 to 2.8% of gross domestic product in 2016/17.

“But if growth outcomes continue to disappoint, achieving this objective will be much more difficult. Government remains committed to the sustainability to the fiscus and, if necessary, further measures will be taken to achieve our objective,” he assured.

Nene said government would act “decisively” to avoid further ratings downgrades, as these would result in a significantly higher cost of borrowing, both for government and State-owned companies.