Pravin Gordhan. Picture: BLOOMBERG/JASON ALDEN
Pravin Gordhan. Picture: BLOOMBERG/JASON ALDEN

SA FACES difficult choices about how to manage its finances as commodity prices decline and negative sentiment toward emerging markets persists, Finance Minister Pravin Gordhan said.

"We will have to make some tough decisions on how we run the finances of this economy," Mr Gordhan said in an interview on Johannesburg-based Talk Radio 702. "We need to redouble our efforts. It’s important to create hope and optimism." The government is "working hard to produce a credible budget," he said.

Mr Gordhan will present the nation’s budget next month against the backdrop of weakening investor sentiment that saw the rand crash to a record low against the dollar this week. He is seeking to restore credibility in fiscal policy after President Jacob Zuma took the economy closer to the brink of a junk credit rating and sent the rand into a tailspin in December, when he unexpectedly fired his former finance chief, Nhlanhla Nene.

South Africans need to see "which solutions can be found" to improve the economy, and the government needs to find ways to "incentivise the private sector to invest," Mr Gordhan said. The government has "a team that recognises the challenges we face," he said.

The rand weakened 1.2% to R16.6416 per dollar at 12.30pm in Johannesburg on Friday, while yields on SA’s rand-denominated government bonds due in December 2026 fell one basis point to 9.63%.

Speaking to reporters on Friday in Pretoria, Mr Gordhan said the rand’s depreciation was being driven by falling commodity prices and higher risk aversion.

"We have a terrible global climate at the moment," he said. That and the recession in two of the Brics countries "have led to a particularly negative approach to emerging markets, which we think is totally unjustified," he said.

While currency speculation can sometimes result in the rand suffering "flashes," as was the case this week when it fell to R17.9169 to the dollar, the local unit is a "shock-absorber" and the government doesn’t have to "spend billions of rand trying to defend the currency — it will go up and down," he said.

Economic growth has been under pressure because of electricity shortages, weak global demand, plunging metal prices and drought. Bank of America Merrill Lynch this week cut its 2016 growth forecast for the nation one percentage point to 0.4%.

The government has struggled to rein in public debt as growth slows, prompting credit-rating downgrades in the past two years. Gross debt has surged to almost 50% of gross domestic product from 26% in 2009 when Mr Zuma came to power.

The October mid-term budget targets a fiscal deficit of 3.8% of gross domestic product in the year ending March 31, and 3.3% the following year.

Mr Zuma fired Mr Nene on December 9 and replaced him with unknown legislator Desmond van Rooyen. He backtracked four days later by reappointing Mr Gordhan, who served as finance minister between 2009 and 2014, to the post.

Bloomberg