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Medium Term Budget Policy Statement 2006 Joint Meeting: Briefing on the MTBPS of the Portfolio Committee on Finance, Select Committee on Finance and the Joint Budget Committee held on the 26 October 2006. Expenditure trends… substantial resources over past decade. Real non. -. -. - PowerPoint PPT Presentation
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Medium Term Budget Policy Statement 2006
Joint Meeting:Briefing on the MTBPS of the Portfolio
Committee on Finance, Select Committee on Finance and the Joint Budget Committee held
on the 26 October 2006
National Treasury
Expenditure trends… substantial resources over past decade
1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/090.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90Real non-interest expenditure (1997/98 = 1)
1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/090.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90-interest expenditure (1997/98 = 1)
National Treasury
Fiscal stance trending towards smaller deficits & surpluses…
Main Budget Deficit
03/04 04/05 05/06
Original Deficit
forecast
-2,6 -3,1 -3,1
Deficit
outcome
-2,3 -1,5 -0,3
• Strong revenue trends in excess of expenditure trends result in lower fiscal deficits and possibly small surpluses…
• Growth in revenue remains strong as result of good growth rates and commodity prices
• Projected under-spending (gross) of R4.2 billion in 2006/07 will yield deficit of -0,4 per cent this year
National Treasury
Partly due to strong growth trends…
-3
-1
1
3
5
7
9
11
2000
2001
2002
2003
2004
2005
2006
Source: Stats SA and SARB
per
cent
q-o
-q,
s.a.
a.r.
GDP at market prices GDE (excl residual & inventories)
National Treasury
Sustained growth in future years
0
1
2
3
4
5
6
2003 2004 2005 2006 2007 2008 2009
per
cent
Growth will rise to just over 5 per cent by 2009 in line with AsgiSA targets
National Treasury
Macroeconomic framework
Calendar year 2006 2007 2008 2009
Estimate Forecast
Percentage change unless otherwise indicated
Final Household consumption 6.6 4.4 4.5 4.7
Final Government consumption 5.6 4.5 4.6 4.6
Gross fixed capital formation 9.5 9.0 9.3 10.0
Gross domestic expenditure 7.2 4.3 5.2 5.7
Exports 2.7 6.5 6.3 6.4
Imports 13.0 5.7 7.4 7.6
Real GDP growth 4.4 4.4 4.8 5.3
GDP deflator 6.5 6.6 4.8 4.5
GDP at current prices (R billion) 1,693.4 1,885.0 2,069.6 2,277.2
CPIX (Metropolitan & urban, average of year)
4.6 5.5 4.4 4.5
Current account balance (% of GDP)
-5.7 -5.3 -5.6 -5.8
National Treasury
International backdrop
• Global environment growth supportive, but risks rising– Persistent twin deficits concern
– Strong capital flows to emerging markets may slow
– Rising interest rates
• World growth projected to rise slightly in 2006 and then moderate
• Developing countries lead growth, particularly China and India
• Commodity prices relatively high
National Treasury
Commodity prices and world growth
0
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006*
Index 2
000 =
100
0
1
2
3
4
5
6
per c
ent
World growth (RHS) Metals Index Energy Index
Commodity boom underpinned growth in resource rich countries like SA but won’t last forever
National Treasury
Domestic economy
• Growth has been strong, inflation is relatively low, employment growth continues
• Nevertheless a number of macroeconomic policy challenges have emerged
• Short-run challenges: – Managing fiscal-monetary policy mix– Understanding commodity price movements and potential effects
• Long-run challenges:– Reducing poverty and inequality by committing government to a
vision for sustainable long-term growth (ASGI-SA)– Industrial policy in trade performance
National Treasury
• Poor agricultural performance drag on growth
Sectoral performance
-15
-10
-5
0
5
10
15
Agr
icul
ture
Min
ing
Man
ufac
turin
g
Ele
ctric
ity a
ndW
ater
Con
stru
ctio
n
Who
lesa
le a
ndR
etai
l Tra
de
Tra
nspo
rt a
ndC
omm
Fin
ance
and
Bus
Ser
v
Gov
t Ser
vice
s
Per
sona
lS
ervi
ces
Per
cen
t
2005 First half of 2006
National Treasury
Trade balance
15
17
19
21
23
25
27
29
31
2000 2001 2002 2003 2004 2005 2006Q1 2006Q2
Pe
rce
nt
of
GD
P
Exports Imports
15
17
19
21
23
25
27
29
31
2000 2001 2002 2003 2004 2005 2006Q1 2006Q2
Pe
rce
nt
of
GD
P
Exports Imports
Trade Surplus
Trade Deficit
A widening trade deficit since 2004 driven by strong import growth, related to strong rand and consumer demand
National Treasury
Exports by product
Name of export % of total exports (year to August)
% growth (year to August)
Platinum 13.5 44.8
Gold (including gold palted with platinum) 9.0 11.3
Coal 5.2 -8.3
Light motor vehicles 6.3 19.9
Ferro-alloys 4.9 -0.4
Diamonds 4.3 -8.1
Centrifuges (i.e. filtering or purifying machinery)3.9 35.5
National Treasury
Imports by product
Name of import % of total imports (year to
August)
% growth (year to August)
Petroleum oils and oils obtained from bituminous minerals (Crude) 13.3 37.7
Original equipment components for motor vehicles 8.3 15.2
Motor Cars and other 6.5 19.4
Petroleum oil (i.e. refined product) 3.6 138.4
Transmission Apparatus for Radio-telephony,Radio telegraphy, radio broadcasting or television 2.7 9.9
Automatic Data Processing Machines (computers and related machinery) 2.6 22.6
Medicaments 1.7 16.1
National Treasury
Current account deficit
• Rising domestic demand and capacity utilisation
• Increasing reliance on imports
• Thus widening savings and investment imbalance
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: SARB
per
cent of G
DP
Savings-investment gap Current account balance(Difference reflects change in inventories)
National Treasury
Oil prices projected to decline
0
10
20
30
40
50
60
70
2003 2004 2005 2006* 2007* 2008* 2009*
US
$/b
arr
el
Oil prices expected to fluctuate around US$60/ barrel over next year or two and then decline, although new shocks possible
National Treasury
Net saving
-8
-6
-4
-2
0
2
4
6
8
10
12
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: SARB
per
cent of G
DP
Government Households Corporates
Government and household savings are still negative which impacts on the current account deficit…
National Treasury
Government savings and current balance
-10
-8
-6
-4
-2
0
2
4
1991/9
2
1992/9
3
1993/9
4
1994/9
5
1995/9
6
1996/9
7
1997/9
8
1998/9
9
1999/0
0
2000/0
1
2001/0
2
2002/0
3
2003/0
4
2004/0
5
2005/0
6
2006/0
7
2007/0
8
2008/0
9
2009/1
0
per
cent G
DP
Current balance Gen. Gov Savings Forecast savings
Government savings will turn positive over the MTEF through the proposed fiscal stance, producing first budget surplus
National Treasury
Fiscal framework
Main budget framework, 2005/06 – 2009/10
2005/06 2006/07 2007/08 2008/09 2009/10
R billion Outcome Estimate Medium-term estimates
Total revenue 411.7 466.4 543.0 586.4 633.5
Percentage of GDP 26.3% 26.7% 28.2% 27.7% 27.2%
Budget balance1 -5.0 -7.8 9.3 -3.8 -10.2
Percentage of GDP -0.3% -0.4% 0.5% -0.2% -0.4%
Total expenditure 416.7 474.2 533.7 590.2 643.7
Percentage of GDP 26.7% 27.2% 27.7% 27.8% 27.6%
Debt service cost 50.9 52.6 53.8 54.1 52.4
Percentage of GDP 3.3% 3.0% 2.8% 2.6% 2.2%
Non-interest expenditure 365.8 421.6 479.9 536.1 591.3
Percentage of GDP 23.4% 24.2% 24.9% 25.3% 25.4%
real growth (non-interest expenditure)
9.9% 9.7% 8.3% 7.1% 5.5%
Contingency reserve – – 2.2 6.0 10.0
Gross domestic product 1,562.8 1,745.8 1,928.3 2,119.9 2,330.5
1. A positive number reflects a surplus and a negative number a deficit.
National Treasury
Budget is broadly in balance over the MTEF period
-5
-4
-3
-2
-1
0
119
96/9
7
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
200
5/06
200
6/07
200
7/08
200
8/09
200
9/10
per
cent
of G
DP
National Treasury
• Roll-overs– Unspent in 2005/06 and rolled over to 2006/07
• Unforeseen and unavoidable expenditure– Increased expenditure ito s30(2) of the PFMA
• Self-financing
• Shifting of funds to follow transfer of functions
• Amounts announced but not appropriated to a specific vote
Components of in-year adjustments
National Treasury
• Funds rolled over for N2 Gateway housing project totaling R372 million
• Emergency funding for flood damage totals R654 million
• Initial payment for 2010 WC of R600 million
• R2 billion for the recapitalisation of state-owned enterprises
• Savings by Correctional Services and Land Affairs of R800 million and R1 billion, respectively
Key in-year adjustments in 2006/07
In year adjustments result in expenditure level increasing from R472,7bn to R474,2bn
National Treasury
Focus on infrastructure remains central to development strategy
• Create capacity by accelerating infrastructure investment• Additional funding over MTEF of R28 billion• Total infrastructure expenditure over MTEF is R409,7 bn
– Economic infrastructure: Electrification, roads, rail, housing, bulk infrastructure, etc.– Social infrastructure: hospital revitalisation, schools, water and sanitation
2007 MTEF infrastructure expenditure estimates
2005/06 2006/07 2007/08 2008/09 2009/10
R million Estimate Medium-term estimate
National departments 1,2 5,178 5,636 6,386 7,075 8,189
Provincial departments 2 22,741 27,414 34,554 40,340 42,910
Municipalities 21,084 22,238 25,537 30,870 32,637
Public private partnerships 3 728 3,368 3,366 4,849 3,947
Extra-budgetary public entities 3,875 4,378 5,257 5,565 6,340
Non-financial public enterprises 26,424 38,322 44,681 50,324 56,929
Total 80,030 101,356 119,781 139,023 150,952
Percentage of GDP 5.1% 5.8% 6.2% 6.6% 6.5%
GDP 1,562,785 1,745,795 1,928,295 2,119,871 2,330,459
National Treasury
And Social services remains a major feature of 2007 MTEF
• Consolidated Spending• R80bn new allocations
– R21,7bn Social services– R28bn Infrastructure
investments– R3,6bn for JCPS
Social services57%
Economic services and infrastructure
20%
Administration7%
Protection services16%
National Treasury
Key spending areas
• Investment in stadiums and public transport to ensure a successful 2010 FIFA World Cup
• Stepping up investment in the built environment in the form of housing, electricity, water, sanitation and community facilities
• Contributing to improved economic efficiency through investment in roads, rail, research and development, energy and skills development
• Strengthening the criminal justice sector, with particular emphasis on visible policing and improving court case flows
• Improving the quality of education, health and welfare services through additional resources and targeted interventions to improve public administration
National Treasury
Provincial priorities
• Provincial equitable share grows by 7% in real terms– Improving quality/access to education, health and social
development
– Improving remuneration of educators and health professionals
• Step-up in conditional grants– Provincial infrastructure grant (R4,3bn)
– Hospital revitalisation grant (R1bn)
– Integrated housing and human settlement dev grant (R2,7bn)
– Comprehensive HIV and Aids grant (R750mn)
– National tertiary services grant (R550mn)
• New provincial boundaries have significant impact on provincial finances
National Treasury
Local government priorities
• Local government equitable share grows by 11% in real terms– Increased funding for free basic services to poor households– Improving governance and administrative systems
• R45,7bn Capital transfers to municipalities include:– R24,7bn for infrastructure to roll out basic municipal services– R7,8bn for construction and upgrading stadiums– R6,7bn to host cities for stadium precincts and public transport– R1,4bn for bulk systems for water supply and sanitation– R1,4bn for electricity infrastructure– R3,7bn for neighbourhood development partnership grant
• Capacity-building in municipalities is prioritised– Focus on planning, budgeting, financial management skills– Siyenza Manje programme led by DBSA
National Treasury
• Buoyant economic conditions
• Non-agricultural GDP has grown by 5 per cent a year since 2004
• Growth in GDP per capita has accelerated from 1,4 per cent in 2003 to 3,5 per cent in 2005
• Over 1 million jobs in the last three years
• Main policy responses– Balanced budget over the medium-term– Spending focus on infrastructure– Social services spending is also sustained
MTBPS Highlights
National Treasury
Thank You