Wed Oct 26 11:39:50 CAT 2016


By Ntsakisi Maswanganyi | Jun 29, 2010 | COMMENTS [ 0 ]

DECISIONS made at the weekend's Group of 20 rich and developing nations meeting in Toronto, Canada, are not likely to be implemented in the short term, meaning South Africa will not be affected for now.

This is according to analysts interviewed by I-Net Bridge following the meeting. Decisions taken included a commitment to halve budget deficits by 2013 and to stabilise government debt ratios by 2016.

Rand Merchant Bank analysts described the decisions as "nothing new".

"I'd be surprised if they are able to halve their budget deficit by 2013, especially the US. I think it might be more likely for the EU countries. In the short term, South Africa won't be impacted," said Efficient Group economist Merina Willemse.

Leaders also agreed to financial sector reforms, including increasing bank capital requirements.

Investment Solutions economist Chris Hart said he thought the G20's efforts were an opportunity to provide some confidence to markets globally, which traded in negative territory by the end of last week over uncertainty about the kind of agreements that would be reached at the meeting.

"I think deficit reduction is being forced on the group rather than anything else, but deficits are widely exceeding tolerance limits," said Hart.

According to Hart, a major concern is fiscal drag - a situation where spending minus taxation fails to cover the net savings needs of a private economy.

"The fiscal drag is going to be a contributory reason why a double-dip recession is on the cards in Europe particularly, and partly the US," he suggested.

Willemse said there were other reasons why it would be almost impossible for rich nations to halve their budget deficits by three years' time.

"Either they increase taxes, which is unlikely because that would dampen demand, or the other option is that they lower expenditure. Lowering expenditure will be the complete opposite of what they've been doing in terms of pumping billions into their economies," said Willemse.

SA's own budget deficit remains high.

According to the national Treasury's 2010 Budget Review, there was a budget deficit of -7,3percent in the 2009/10 financial year, while a - 6,2percent deficit is forecast for 2010/11. - I-Net Bridge


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