Thursday, September 10, 2009

SA will emerge stronger from recession: Gordhan

Monday, 07 September 2009 -- Reuters

South Africa will continue with its stimulus package and will emerge stronger from the recession, Finance Minister Pravin Gordhan said upon his return from the Group of 20 (G20) meeting in London.

Gordhan said on Sunday that there was hope that the green shoots in the world economy were real, but that it was not yet time, for the world and South Africa, to pull back on stimulus packages.

There were signs that some countries, such as Japan and Germany, were coming out of recession, but others were lagging behind, he said, repeating his warning that South Africa may be slower to return to growth than others.

"There is this cautious hope ... it is going to be a long, hard road ahead of us but one that if we manage, as we have managed our fiscal and monetary situation well, we will ensure that South Africa ends up in a better place than it currently finds itself," he said.

Africa's biggest economy joined the global recession later than others and is now struggling despite recovery elsewhere. It first contracted in the last quarter of 2008 and many analysts see another fall in the third quarter, although the rate of decline has slowed.

"For South Africa it means that we have got to continue with the work that we have been doing with respect to our own stimulus package," Gordhan said, adding it needed to have a fiscal plan for the next few years.

Government and its utilities plan to spend R787 billion over the next three years on infrastructure, and will make money available to help struggling sectors and for public works programmes.

The deficit is seen rising sharply, on less revenue due to the recession and the strong spending, but the Treasury has indicated it will return to conservative policies once conditions improve.

No "old normal"
Gordhan said banks, globally, should not expect to go back to the risky way of doing business that helped precipitate the world downturn.

"The key message from the G20 is that there is no back to the old normal."

However, he supported suggestions that South African banks could loosen their lending criteria to help spur the economy and save jobs.

"There has been an observation that in South Africa we might have tightened credit too much and that there might be a requirement that banks approach this question differently," he said.

"We understand that there are risks that are involved in the banking sector if they approach this in an incorrect way, but I don't think that the kind of loosening that we are now seeing is necessarily inappropriate."

South African banks remained relatively strong through the crisis, due largely to fairly conservative lending practices and exchange controls that limited exposure to "toxic assets" in other countries.

Some banks, including Standard Bank, which said last week it would ease restrictions on mortgages, have begun to make loans more available even though bad debts are up sharply.

A 5 percentage point drop in interest rates since December - the central bank's repo rate is now at 7 percent - has should help boost households, but for now spending remains weak. Private sector credit demand grew only 3.4 percent year-on-year in July, the lowest rate of growth in 5 years.

"It is important that businesses get the extra leeway and opportunity to stay in business ... and if they stay in business they can keep their workforces in jobs," Gordhan said.

The Treasury said in a statement that South Africa supported G20 initiatives to improve the architecture of the financial regulatory system, and in particular, backed initiatives to regulate bankers pay and bonuses.