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South Africa implements cost-cutting Measures as revenue shortfalls.

IMAGE: South Africa’s market center

In response to a significant revenue shortfall and a struggling economy, South Africa’s National Treasury is rolling out a series of belt-tightening measures aimed at curbing government spending. These steps include putting a freeze on new hires and temporarily stopping the issuance of new contracts for infrastructure projects.

This decision, communicated via a letter addressed to national departments, provinces, and public entities, comes as a direct response to the nation’s economic woes. A sluggish economy and lower-than-expected tax collections have prompted the government to take these actions.

The Treasury has underscored its commitment to working closely with various government entities to identify further ways to consolidate budgets. However, it’s important to note that the measures detailed in the letter alone may not be enough to completely restore fiscal stability.

These cost-cutting measures will be put into effect starting on September 15th, affecting various aspects of government operations. Economists have already predicted that South Africa is likely to exceed its budget deficit target for the year due to an anticipated drop in tax revenue, primarily attributable to sluggish economic growth.

One of the major contributors to South Africa’s economic challenges over the past decade has been the ongoing issue of rolling power outages, which have severely limited the country’s growth potential and impacted businesses of all sizes. The state-owned power utility, Eskom, has grappled with frequent breakdowns at its coal-fired plants, leading to some of the most substantial power outages the country has ever experienced.

Despite these challenges, the economy did manage to show a slight growth of 0.2% in annual terms in the first quarter of 2023. The central bank has noted that, were it not for the power cuts, growth could have been much closer to 2%.

To address the revenue gap, the government is expected to unveil further steps in its medium-term budget policy statement, which is scheduled for release in October. This statement will provide more insights into South Africa’s strategy for navigating its current economic challenges and restoring fiscal stability.

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