Finance Minister Pravin Gordhan indicated on Wednesday that he was alive to the threat posed by a too rapid move towards fiscal consolidation, particularly in an environment where the anticipated handover from public to private investment in spurring the economic recovery was not taking place owing to a lack of confidence.

He, therefore, hinted that the upcoming Medium-Term Budget Policy Statement (MTBPS) was likely to emphasise the continued use of public resources to stimulate growth and safeguard jobs – the statement would be released on October 25.

In other words, the policy transition to fiscal tightening and monetary loosening, as outlined in South Africa's February Budget, was likely to be deferred in favour of "growth-inducing" investment to avoid a situation where austerity measures became a further drag on an already slow-growing economy.

There was a growing fear globally that moves to reduce government debt were raising the risk of so-called ‘fiscal drag’ at a time when corporates lacked the confidence to make the investments required to stimulate growth and sustain the post-Great Recession recovery. This despite the fact that corporate balance sheets were far more robust than was the case ahead of the 2008 financial meltdown.

In fact, it is estimated that corporate America alone had surpluses of up to $3-trillion, which it was hoarding owing to the current risks and uncertainties, primarily those emerging from within the 17-nation eurozone.

Speaking at a briefing called to report back on deliberations at last week's World Bank-International Monetary Fund meetings in Washington DC, Gordhan said there was growing consensus that public resources were, therefore, still required to bolster flagging demand. But that this spending should be geared towards productive and infrastructure investment programmes rather than towards consumption.

The "normal" pattern of recovery, whereby the investment baton was handed over from the public to the private sector had failed to materialise, leaving government to ponder new short-term stimulus measures, while delaying fiscal consolidation. South Africa, Gordhan said, would seek to strike a balance between fiscal "credibility" and economic growth, the details of which would be outlined in the MTBPS.

“The challenge that is facing all of us around the world, is that the normal recovery is not happening . . . and given the abnormality, if you like, and the tumultuousness within the recovery, the question is how do you then manage fiscal credibility . . . and how do you ensure that your economy grows so that you can also generate revenue. That is the mix that some countries aren't getting right. I’m not sure how we are going to manage those dynamics . . . but that is part of the challenge that we face,” the Minister noted.

He stressed too that the signal sent in the February Budget was growth-friendly fiscal consolidation and not “stringent austerity for its own sake”.

“We were very aware that we needed to do that which was appropriate to support growth on the one hand, but also demonstrate a keen intent to reduce our debt levels and fiscal deficit over a period of time.”

Government would also look at ways to “crowd in” corporate balance sheets to support an upscaling of capital investments, particularly into infrastructure and in a bid to capitalise on the growth opportunities arising in the rest of Africa and other parts of the developing world.

“Government is very intent on working with the corporate sector in South Africa . . . but it needs to become a more urgent conversation in order to ensure that we can buffer ourselves against the worst of this crisis, but also seize the opportunities that are available to us,” Gordhan said.