Finance Minister Trevor Manuel presents his mid-term budget on Tuesday in a radically altered political and financial arena that has dimmed the glow of the country's growth prospects.

The notoriously optimistic Manuel is expected to announce lower growth forecasts and revenue estimates amid rocketing local inflation and volatile global markets.

Golden age

"The golden age that has raised public finance over the last couple of years is going to lose some of its glow. It is likely revenue growth will not show the buoyancy witnessed over the last couple of years," said Goolam Ballim of Standard Bank Group Economics.

Manuel's February budget predicted a surplus of about 0.6 percent which Efficient Group chief economist Dawie Roodt predicts will shrink to 0.2 percent or even disappear amid a significant slowdown in value added tax collections.

"The minister of finance will probably adjust growth forecasts down a little bit and make changes to estimates on revenue figures. The fiscal surplus is much smaller than it was in the original budget and there may even be a fiscal deficit," Roodt told AFP.

In February Manuel cut growth estimates to four percent in 2008, rising to 4.2 percent in 2009 and 4.6 percent in 2010.

However a slowing economy, coupled with power shortages due to struggling energy giant Eskom saw growth plunge to record low of 2.1 percent in the first quarter before bouncing back.

Inflation above 13 percent is unlikely to lower on the back of improved oil and food prices as the rand currency hit record lows in the past few weeks.

Another world

"This is another world we are living in. There has been a significant slowdown in the domestic economy because of the Eskom debacle and interest rates are relatively high affecting demand in the economy," said Roodt.

"We've had significant changes on the political front, and the changes mean that we have a political grouping that are much more populist."

This is Manuel's last mid-term budget statement before next year's elections, and comes after a meeting of the country's ruling ANC and junior partners which experts say signalled a marked shift to the left in economic policy.

After the ousting of President Thabo Mbeki, who led the country on a firm path of economic growth, concerns have been raised about the direction economic policy will take under the more populist ANC leadership of Jacob Zuma.

The ANC and its partners announced plans to create five-million new jobs, reviews of macro-economic and industrial policy and a new cabinet system with widened social support after elections next year.

However, Pieter Loubscher, chief economist for the Bureau of Economic Research, told AFP he expects Manuel's budget statement will reaffirm the prudent policy that has shielded South Africa from the global financial crisis hammering other developing countries.

No substitution for prudency

"You can decide to do things differently but there is no substitution for prudency.

"Even with the latest very destructive developments abroad a 3.5 percent growth rate still seems possible."

As the mid-term budget is an update on the current financial year and outlines a few adjustments to estimates and not policy, it is unlikely that any political shifts will be felt until next year.

The main opposition Democratic Alliance has called for the biggest possible increases in welfare to the poor without sacrificing growth.

While the current fiscal surplus gives a bit of a cushion to social expenditure, economic realities will make it more difficult to manage increasing social welfare demands in the country.

"The pending budget statement really presents an even tighter path for sustainable fiscal management in an environment of declining revenues and elevated social welfare demands," Gallim said.

AFP