Gordhan cuts S.African growth forecasts and calls for calm
By Stella Mapenzauswa and Wendell Roelf CAPE TOWN (Reuters) - South Africa's Finance Minister Pravin Gordhan slashed growth forecasts for the next three years and called on Wednesday for a period of political calm to help the country cope with looming spending cuts needed to avoid credit ratings downgrades. Gordhan also predicted wider budget deficits than previously expected until 2018/19, in a mid-term budget statement that sent the rand falling more than one percent against the dollar to a session low of 13.9325. The figures added to the clouds hanging over South Africa's economy - already hit by fraud changes brought against Gordhan which his supporters say are politically motivated. Underlining the political challenges lining up against Gordhan's austerity push, students massed outside parliament demanding free education during his speech. Police fired stun grenades and water cannon to disperse them. Speaking to reporters before his presentation in parliament, Gordhan called for an end to "political noise" to help the economy recover. "What we are talking about is surviving the next two years or so. Tighten what whatever needs to be tightened, do whatever needs to be done, on the one hand," he said. "And on the other hand, work like hell to build consensus, to build a common purpose, to get the noise out of the system and create political stability that everyone requires." Gordhan told parliament the economy was suffering infrastructure bottlenecks, volatile labour relations, regulatory constraints and red tape, inefficiencies in state-owned enterprises and uncertainties in the policy environment. The economy will grow by 0.5 percent in 2016, down from an estimate of 0.9 percent in February, he said. The rand weakened more than one percent against the dollar to a session low of 13.9325/dollar after the budget statement, while the benchmark government bond added as much as 11 basis points to 8.9 percent. Ratings agencies Moody's, Fitch and S&P have warned of downgrades by the end of this year to South Africa's credit rating if growth remains weak and Pretoria's commitment to fiscal prudence comes into doubt. "CIVIL WAR" The main opposition Democratic Alliance party said Gordhan had failed to outline reforms to boost growth and create jobs. "That is because the minister has both hands tied behind his back by a government that is paralysed by a civil war," David Maynier, the shadow minister of finance, said in a statement. Investors are on tenterhooks over Gordhan's Nov. 2 court appearance to answer fraud charges. Gordhan, who has denied any wrongdoing, declined to answer journalists' questions on the case against him, which the Treasury, opposition parties and business leaders say are politically motivated. The state prosecutor has rejected allegations of political interference in the decision to charge Gordhan. Markets see Gordhan, who received a standing ovation from members of the assembly before and after his speech, as a guarantor of stability. Support for him reflects approval of the Treasury's commitment to reining in spending and cutting debt. Quoting a southern African proverb on the need for cohesion, Gordhan said: "Lions that fail to work as a team will struggle to bring down even a limping buffalo." Some analysts said Gordhan's forecasts might be hard to attain, with pressure on the government to increase spending ahead of a 2019 national election in which the ruling African National Congress faces a stiff challenge to its rule. "We believe that official forecasts remain too optimistic," Capital Economics analyst John Ashbourne wrote in a note. (Additional reporting by Mfuneko Toyana in Cape Town and Olivia Kumwenda-Mtambo in Johannesburg; Editing by James Macharia and Andrew Roche)
