2005 MTBPS 25 October 2005

1
2005 MTBPS25 October 2005

• Introduction
• Macroeconomic overview
• Fiscal framework
• Key issues
• Vertical division of resources
• Conclusion

2
Accelerated and shared growth

• Growth initiative supported by the MTBPS in
  projected allocations for
• Infrastructure development
• Education and skills development
• Second economy interventions
• Growth initiative also focuses on removing
  constraints to growth
• Growth initiative supports economic buoyancy in
  coming years and raises potential growth rate
  from 5 to 6

3
Sectoral composition of the economy
4
Macroeconomic overview

• Brisk economic growth 4.4 in 2005, rising to
  between 4.5 and 5 in outer years. Slight
  slowdown next year to 4.2 oil prices, interest
  rates in US, slower growth in Europe.
• Consumer spending buoyant (employment growth and
  real wages).
• Private and public investment robust as GFCF
  nears 17 of GDP.
• Export growth from high commodity prices and some
  manufacturing improvement. Imports remain high
  with GDE and investment spending.
• Current account deficit to remain high and
  capital inflows depend on world economy.
• Oil price pressures on inflation but some
  offsetting factors.

5
Growth outlook

• Growth forecast strongly positive, with a few
  significant upside and downside risks
• Rising private and public investment by an
  average 9.7 a year.
• Fiscal envelope increasing by R78.3 billion.
• Low inflation and low interest rates
• Expansion in employment
• Consumption growth stable (4.3 a year average)
• Potential increase in foreign demand for SA
  exports
• Possible decline in commodity and oil prices (
  and -)
• Shifts in capital flows.

6
Oil prices
Real oil prices remain well below 1979
highs. Risk to domestic inflation.
7
Forecast (fiscal years)
8
Fiscal framework
Main budget framework, 2004/05 2008/09 Main budget framework, 2004/05 2008/09 Main budget framework, 2004/05 2008/09 Main budget framework, 2004/05 2008/09 Main budget framework, 2004/05 2008/09 Main budget framework, 2004/05 2008/09
    2004/05 2004/05 2004/05 2005/06 2006/07 2007/08 2008/09
  R billion Outcome Outcome Outcome Medium-term estimates Medium-term estimates Medium-term estimates
Total revenue 347.9 347.9 347.9 400.1 437.0 479.0 527.2
Percentage of GDP 24.7 24.7 24.7 25.9 25.8 25.8 25.9
Deficit -20.6 -20.6 -20.6 -15.7 -37.0 -39.3 -41.5
Percentage of GDP -1.5 -1.5 -1.5 -1.0 -2.2 -2.1 -2.0
Total expenditure 368.5 368.5 368.5 415.8 474.0 518.3 568.7
Percentage of GDP 26.2 26.2 26.2 27.0 28.0 27.9 28.0
Debt service cost 48.9 48.9 48.9 51.8 53.9 54.8 56.6
Percentage of GDP 3.5 3.5 3.5 3.4 3.2 3.0 2.8
Non-interest exp 319.6 319.6 319.6 363.9 420.0 463.5 512.1
Percentage of GDP 22.7 22.7 22.7 23.6 24.8 25.0 25.2
Real growth (non-interest expenditure) Real growth (non-interest expenditure) 8.8 8.8 8.8 9.9 5.3 5.7
  Gross domestic product Gross domestic product Gross domestic product 1,405.5 1,542.2 1,693.7 1,856.7 2,033.3

9
Summary cluster allocations

• Additional allocations to national departments
  and conditional grants over the MTEF period
  include
• R20 billion for investment in the built
  environment
• R12 billion for education, health, libraries,
  social grants, cultural institutions and sports
  participation
• R9 billion for economic services, including
  science and technology development and industrial
  policy initiatives
• R7 billion for improved courts, policing, defence
  equipment and improving access to justice
  services
• R8 billion for investment in improved public
  administration.
• The provincial equitable share will receive an
  additional R31 billion over the next three years,
  and allocations to municipalities will rise by
  R24 billion, including compensation for the
  phasing out of RSC levies.

10
Division of Revenue
11
Provincial budget framework

• R46 billion added to provincial budgets
• R30,8 billion for provincial equitable share
• R15,1 billion added to conditional grants
• R15 billion to be spent on the provincial
  infrastructure grant

12
Provincial government shares
13
Local government budget framework

• Receives an additional R2 billion over the 2006
  MTEF to improve community infrastructure and
  quality of services, expand provision of free
  basic services
• The revised framework also makes R24 billion
  available for the replacement of the RSC levies

14
Revisions to local government budget framework
15
Conclusion

• Fiscal expansion (R78 billion or 6.3 growth)
  continued due to strong economic performance.
• Significant increases in resources for each
  sphere of government.
• Suggested targeting of new funding in line with
  Accelerated and Shared Growth Initiative, new
  needs, and standing priorities for government
  service delivery (housing, education).