Cape Town - South Africa downgraded its economic growth and budget deficit forecasts for this year on Wednesday, but vowed to keep a tight grip on spending to avoid its credit rating sliding into junk status.
In his first policy statement since being appointed in May, Finance Minister Nhlanhla Nene warned that the economy is not making sufficient progress to reduce poverty and create jobs, deepening inequality.
The budget deficit for 2014/15 is now seen at 4.1% of GDP, slightly wider than the 4% forecast by Nene's predecessor Pravin Gordhan in February. Economists polled by Reuters expected a 4.4% gap.
"The weak economic performance has put a great deal of pressure on the fiscus, with revenue insufficient to cover expenditure," Nene told parliament.
"The budget deficit is high, debt levels have approached the limits of sustainability, and the economy is vulnerable to global volatility."
The economy would only manage growth of 1.4% in 2014, compared with 1.9% last year, and down from the 2.7% predicted in February.
In its Medium Term Budget Policy Statement for the next three fiscal years, the Treasury said it would keep spending in check and raise tax revenue over the next two years, stabilising its debt at R2.4 trn by 2017/18.
"Without an adjustment, it is likely that South Africa's sovereign debt would be downgraded to 'sub-investment grade', risking impaired access to credit markets," it warned.
The government would freeze new jobs in the public sector and ensure that financial support from state firms would not widen the budget deficit.
But Nene pledged to continue pumping money into social services and said infrastructure investment would remain on track.
South Africa's economy, recently overtaken by Nigeria as the largest on the continent, has been battered by waves of labour unrest that have hobbled output in the platinum mining and manufacturing sectors.
The Treasury said expansion would edge up steadily to 3% by 2017, supported by investments in energy and transport, a gradual pick-up in global growth and rising exports to other African states.
But this was still a far cry from the 5% average required to cut unemployment from 25%.