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Rocketing prices for iron ore, platinum, and other resources for which South Africa is a key supplier will give the country an unplanned $12 billion that it will use to cut its budget deficit, finance minister Enoch Godongwana said in comments cited by the Financial Times.
The windfall also will allow the country to reduce its borrowing this year for the first time since 2015, seeking about $8 billion less from outside sources.
In recent years, Africa’s most industrialized economy has been plagued by stagnant growth, falling tax revenues, rising wages for government workers, and costly bailouts of state-backed companies.
This year’s boost in revenues “is not a reflection of an improvement in the capacity of our economy,” Godongwana said. “We cannot plan permanent expenditure on the basis of short-term increases in commodity prices.”
The government will balance its budget by 2024, exclusive of interest payments, and public debt will peak in 2025 at 75 percent of GDP, he predicted.
TREND FORECAST: While inflation brings a windfall to some poor nations depending on exports of raw materials, it also boosts their costs of imports and of servicing their massive debts.
Higher commodity prices may delay, but will not avoid, a reckoning between developing nations and their lenders.