Transcript Economic and Fiscal Review and Outlook

Outline
 Purpose
 Economic performance
 Impact of slower growth
 Consolidated fiscal framework
 Non-interest expenditure
 Interest expenditure
 SA’s credit rating
 Priority programmes
 Priority spending sectors
 Implications
Purpose
To provide members:
 with an assessment of the current economic situation
underlying the fiscal framework
 the impact on the estimated growth in revenue,
expenditure, the budget deficit and government
borrowing
 with a review on outcomes of expenditure to consider
for possible reprioritisation, strengthening or efficiency
gains within sectors
 To assist members with making recommendations for
possible adjustments to the current appropriations
Economic Performance
 GDP growth in 2013: 1.8%
 Estimated GDP growth for 2014: 2.7%
 1st quarter of 2014: contraction of 0.61% qoq
compared with 3.8% qoq growth in the last quarter of
2013
 revised estimates from different institutions for 2014:
between 1.9 and 2.3 per cent
 There is therefore a possibility that government
will revise the growth forecast over the medium
term
Impact of slower growth
Revenue estimates
performance:
are
based
on
economic
 Slower growth will translate into lower revenue
collection
 If expenditure levels remain the same, the
budget deficit will increase
 Higher deficit translates into higher borrowing
requirements and interest expenditure
Consolidated fiscal framework
2010/11 – 2016/17
2010/11
R billion/percentage of GDP
Revenue
% of GDP
Non-interest expenditure
% of GDP
Interest payments
% of GDP
Expenditure
% of GDP
Budget balance
% of GDP
GDP at current prices (R billion)
2011/12
2012/13
Outcom e
2013/14
Estim ate
2014/15
2015/16
2016/17
Average
annual
grow th
over MTEF
Medium -term estim ates
762.9
27.8%
842.3
28.3%
909.3
28.4%
1 010.5
29.2%
1 099.3
29.0%
1 201.3
28.9%
1 324.7
29.1%
9.4%
804.7
29.6%
871.4
29.4%
951.7
29.9%
1 041.6
30.3%
1 131.1
30.0%
1 218.1
29.5%
1 306.5
28.8%
7.8%
75.3
2.7%
81.7
2.7%
93.5
2.9%
107.7
3.1%
121.2
3.2%
133.5
3.2%
145.1
3.2%
10.5%
880.0
32.0%
953.1
32.0%
1 045.2
32.7%
1 149.3
33.2%
1 252.3
33.1%
1 351.6
32.6%
1 451.7
31.9%
8.1%
-117.1
-4.3%
-110.8
-3.7%
-135.9
-4.3%
-138.8
-4.0%
-153.1
-4.0%
-150.3
-3.6%
-126.9
-2.8%
-2.9%
3 197.9
3 464.9
3 789.6
4 150.5
4 552.9
9.5%
Compensation expenditure
Interest expenditure
 The level of interest payments is determined by
total outstanding government debt and the cost
of debt
 The estimates of interest expenditure are
susceptible to two distinct risks:
 total government debt could grow beyond the
estimated level
 the downgrade of SA’s sovereign debt by credit rating
agencies translate into higher interest costs on foreign
borrowing and government’s ability to borrow
SA’s credit rating
 In June 2014, Fitch and S&P downgraded South Africa’s
sovereign credit rating
 South Africa’s credit rating could be subjected to a further
downgrade if the economic outlook deteriorates
 A further downgrade would raise foreign debt service costs
 Government would have limited space to raise more debt to
fund future budget deficits
 This would necessitate expenditure cuts on programmes
 which would slow down the implementation of the
National Development Plan
Priority programmes
To ensure performance on the outcomes of the NDP the national budget is allocated
towards programmes clustered together within functional groups
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Quality basic education
A long and healthy life for all South Africans
All people in South Africa are and feel safe
Decent employment through inclusive growth
Skilled and capable workforce to support an inclusive growth path
An efficient, competitive and responsive economic infrastructure network
Comprehensive rural development
Sustainable human settlements and improved quality of household life
Responsive, accountable, effective and efficient developmental local government system
Protect and enhance our environmental assets and natural resources
Creating a better South Africa and contributing to a better and safer Africa in a better world
An efficient, effective and development oriented public service
An inclusive and responsive social protection system
Transforming society and uniting the country
Priority spending sectors
Implications
 Slower growth
 Lower than expected revenue
 higher budget deficit
 higher cost to borrow
 Less funds for spending on programmes
 outcomes of NDP compromised
 How do we respond?




address root causes of the constraints to economic growth
reprioritise
realise efficiency gains
monitor
Thank you
Provincial equitable share
formula
 The formula is largely population driven
 Six factors capture the relative demand for services
between provinces

education (48%)

health (27%)

basic share (16%)

poverty (3%)

economic activity (1%)

institutional (5%)
 The PES formula is reviewed and updated with new data
annually
Provincial allocations
2014/15
% share
2015/16
% share
2016/17
% share
Eastern Cape
52 154
14.39%
55 389
14.28%
57 876
14.05%
Free State
20 883
5.76%
22 223
5.73%
23 158
5.62%
Gauteng
68 673
18.95%
74 214
19.13%
80 244
19.47%
Kw aZulu-Natal
78 138
21.56%
83 348
21.48%
87 887
21.33%
Limpopo
43 274
11.94%
46 109
11.88%
48 622
11.80%
Mpumalanga
29 355
8.10%
31 449
8.11%
33 728
8.19%
9 652
2.66%
10 277
2.65%
10 941
2.66%
North West
24 707
6.82%
26 528
6.84%
28 386
6.89%
Western Cape
35 631
9.83%
38 431
9.91%
41 196
10.00%
362 468
100%
387 967
100%
412 039
R m illion
Northern Cape
Total
100%
Provincial allocations (cont.)
percentage change in share
Provincial allocations (cont.)
R'million
600,000
500,000
Indirect transfers
400,000
300,000
Direct conditional grants
200,000
Provincial equitable share
100,000
–
13/14
14/15
15/16
16/17