US Export Council Report, South Africa, Prudent Fiscal Policies.

Oct. 21, 2008 - PRLog -- Finance Minister Trevor Manuel said on Tuesday South Africa's banks remained sound and the country was well positioned to weather the global financial storm, even as many nations faced recession.

"Our low level of debt, especially foreign debt, and our prudent approach to fiscal policy, provide us with the space to adjust our policies to cushion the economy against the worst effects of the global crisis. Let me comment briefly, Madam Speaker, on the oversight of our financial institutions in the present circumstances, and the special role that trust and integrity play in securing effective credit markets and financial peace of mind."

The financial stability assessment conducted by the IMF and World Bank during April and May this year concluded that the financial system in South Africa is fundamentally sound, and noted that our financial sector regulatory framework is sophisticated, modern and effective.

Growth prospects for South Africa, although less than expected in the short term, were likely to pick up in the next few years, which Manuel said showed the success of often unpopular monetary policy decisions.

"In South Africa, Madame Speaker, the balance sheets of our banks remain sound. They rely on rand-based capital and South African deposits, and the local inter-bank market remains fully functional and competitively priced," Manuel said as he presented his three-year budget policy to parliament.

He said South African banks were ranked 15th in the world above both the United States and Switzerland for soundness, by the World Competitivenes Report.

Although he cut growth forecasts from 4.0 percent to 3.7 percent this year and three the next, the budget policy statement said the long-term drivers of growth in the country remained intact.

He predicted growth would rise to 4.0 percent in 2010 and 4.3 percent in 2011.

"Strong public-sector investment will boost productive capacity and reduce growth constraints. Further microeconomic reforms are required to support a higher sustainable rate of growth and to raise employment."

Since 1994 South Africa's government balanced meeting basic needs with promoting growth and investment by trying to rein in inflation, gradually relaxing exchange controls, strengthening bank regulation while steadily accumulating foreign reserves.

"We have adopted a macro-economic framework and a fiscal stance capable of withstanding tough times and protecting our economy and our people during times of global economic turbulence," he told parliament.

The financial crisis will still hurt the country's growth prospects as international trade slows with lower commodity prices likely to hit South Africa, which depends on commodities exports, he added. Our country faces a difficult period ahead. There is no telling how deep the global financial crisis will be, nor how severe and enduring its impact will be on incomes and economic activity. We are obliged to table fiscal plans and spending proposals in a context of considerable economic uncertainty. Our economic and budgetary framework, constructed year by year since 1994, is built on solid policy foundations and provides fiscal space within which to respond to both global circumstances and domestic challenges.

Over the next three years, we will continue to step up investment in infrastructure that will drive long term growth, we will continue to expand and improve the quality of public services, and most importantly, we will continue to take the necessary steps to protect the poor and most vulnerable.

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