Finance Minister Pravin Gordhan stressed on Wednesday that tax hikes of R18-billion and expenditure cuts of R15-billion to restore fiscal credibility were but one element of improving the outlook for the South African economy. The other key element related to returning the economy to higher levels of growth, principally by improving the investment climate and by removing policy uncertainty.

In the Budget Review released alongside the Budget Speech, the National Treasury offered a frank assessment of the domestic and external factors that had undermined investor confidence.

“In recent months, perceptions of risk associated with lending or investing in South Africa have increased. Deterioration in the credit-rating outlook towards the end of 2015 was followed by changes in the finance portfolio, catching investors off guard and raising concerns about fiscal probity.”

In addition, China’s slowdown and the associate decline in commodity prices, together with the country’s worst drought in 20 years, were exacting a heavy toll. As a result there had been successive downward revisions to South Africa growth outlook by, among others, the International Monetary Fund and the South African Reserve Bank, which both did not see South Africa expanding by more than 1% in 2016.

Likewise, the National Treasury lowered its growth forecast for the year from 1.7% in October to just 0.9%, while announcing that the South Africa economy grew by only 1.3% in 2015. The forecasts for 2017 and 2018 where also lowered from 2.6% and 2.8% respectively, to 1.7% and 2.4%.

Gordhan said there was an appreciation within government and among stakeholders of the current “crisis” facing the country – an awareness that had assisted him and his team in crafting a Budget that included immediate expenditure cuts and plans for yet more in the outer two years.

A key fiscal priority was to reduce the government wage bill, with spending on compensation, which was initially expected to grow by 8.2% over the three-year period, revised to grow at 7.4%.

However, reigniting growth presented an even more complex problem, with much depending on the outlook for private sector investment and ensuring that government actions did not impede growth.

Gordhan indicated that the process of deciding how to raise new revenue of R18-billion in 2016/17 and R15-billion a year in the subsequent two years was being guided largely by pursuing hikes that would not place even further downward pressure on growth.

In addition, much of the current focus was on rebuilding relations with business, a “soft issue”, which was seen as critical to reversing the country current growth underperformance.

The initial focus of the recently formed government-business working groups would be to stave off a downgrade to junk, with joint road shows planned.

But joint action would also be taken in the coming months to help stimulate small business development and to improve investor confidence more generally.

“By working together we can increase growth, broaden participation and inspire confidence in our economy and society,” Gordhan said.

In addition, government was increasingly open to pursuing partnerships with the private sector, including co-investing in projects and enabling private entities to take minority positions in certain State-owned companies.

“Our economic imperative is to ignite inclusive growth,” Gordhan said, describing growth as central for jobs, for lowering debt, for delivering services and for building infrastructure.