1

DOMESTIC INVESTOR ROADSHOW March 2010

National Treasury

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Agenda

• Macro economic policy

• Funding strategy 2010/11

• Contingent liabilities

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3

Macroeconomic forecast

• Growth projections revised higher to 2.3% in 2010 rising to 3.6% in 2012• Recovery supported by improved global environment, rising investment spending,

government consumption, gradual rise in household spending

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Macroeconomic projections, 2006 – 2012Calendar year 2006 2007 2008 2009 2010 2011 2012

Actual Estimate Forecast

Percentage change unless otherwise indicated

Final household consumption 8.3 5.5 2.4 -3.5 0.9 2.6 2.9

Final government consumption 4.9 4.7 4.9 5.7 4.7 4.1 3.6

Gross fixed capital formation 12.1 14.2 11.7 4.0 5.8 7.8 8.7

Gross domestic expenditure 8.6 6.4 3.3 -1.9 3.1 3.5 3.8

Exports 7.5 5.9 2.4 -20.2 3.8 3.9 5.4

Imports 18.3 9.0 1.4 -18.3 6.8 4.9 5.6

Real GDP growth 5.6 5.5 3.7 -1.8 2.3 3.2 3.6

GDP inflation 6.5 8.2 9.2 7.4 6.6 7.3 6.5

GDP at current prices (R billion) 1 767 2 017 2 284 2 407 2 626 2 908 3 211

Headline CPI inflation 3.2 6.1 9.9 7.1 5.8 6.1 5.9

Current account balance (% of GDP) -5.3 -7.2 -7.1 -4.3 -4.9 -5.3 -5.8

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Signs of economic recovery in South Africa

• A range of indicators point to recovery:

– The leading indicator up 15.7% between March and December 2009

– Q4 GDP growth +3.2%q/q, saar

– Manufacturing capacity utilisation above 80% in the fourth quarter

– PMI strong in January and February

– New car sales up 20.7% y-o-y in February 2010

– House prices are rising

– 89 000 jobs created in the fourth quarter and employment component of the PMI > 50 in Jan and Feb.

Components of the Purchasing Managers Index

Mining, manufacturing & electricity output

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70

80

90

100

110

120 Mining output

Manufacturing output

Electricity output

Inde

x 200

5=10

0 (th

ree

mon

ths

mov

ing

aver

age)

20

30

40

50

60

70

80

Dif

fusi

on

ind

ex (s

easo

nal

ly a

dju

sted

)

Total PMI

PMI-Expected business conditions

PMI - Inventories

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Fiscal sustainability – debt

• Countercyclical fiscal stance enabled government to meet its expenditure commitments during the recession

• The shortfall between revenue and expenditure has been financed by debt leading to higher debt-service costs over the MTEF

• Forecasts indicate that the debt ratio will peak between 43% and 48% of GDP in 2015/16, before gradually declining over the longer term

• As the economy recovers government will act to reduce borrowing and pay down debt

Long-term forecast of national government debt, % of GDP

Possible debt outcomes, % of GDP, 2015/2016

0

5

10

15

20

25

30

35

40

45

50

Per

cen

tag

e o

f G

DP

0

5

10

15

20

25

30

35

Less than33%

33 - 38% 38 - 43% 43 - 48% 48 - 53% 53 - 58% More than58%

Debt to GDP, 2015/16

Pro

babi

lity

(per

cen

t)

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Infrastructure investment supports the recovery

• Capacity expansion in electricity is a major driver of investment– Spending on electricity, gas and water increased by 74% in the first nine months of 2009

• Investment by public corporations grows at an average rate of 17% a year over MTEF and private investment recovers gradually

• R846 billion will be spent over the MTEF period

– Non-financial public enterprises to spend R454 billion (53.7% of total spend)

– Provinces and municipalities continue to be significant drivers of infrastructure spending due to capacity expansion in transport, housing, water & sanitation, hospital revitalisation and social infrastructure

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Contribution to overall investment growth2007 2008 2009* 2010* 2011* 2012*

General government 2.9 2.1 0.9 1.5 0.9 0.9Public corporations 4.0 5.7 7.4 4.4 4.7 5.1Private enterprises 7.2 3.9 -4.3 0.0 2.1 2.7Total 14.2 11.7 4.0 5.8 7.8 8.7* National Treasury projections

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2010/11 Funding strategy

• Net Treasury bill issues of R22 billion in 91-,182-, 273- and 364- day maturities

• Gross bond issues of R151.3 billion in current benchmark bonds and new fixed income bonds [2030/31 and 2040/41] and inflation-linked bonds [2016/17 and 2021/22]

• Foreign loans of R14.8 billion to finance maturing loans, pay interest and meet other government foreign expenditure

• Drawdown of cash balances of R3.6 billion

• Operational cash balances of R40 billion and sterilisation deposits of R60 billion

• Coordinate debt issuance in broader public sector to ensure access to funding

• 40 per cent of SOEs and DFIs borrowing requirement financed from international funding sources

Key figures2009/10 2010/11 2011/12 2012/13

R billion RevisedBorrowing requirementNet borrow ing requirement -171.5 -174.9 -166.6 -156.4Loan redemptions -22.1 -16.8 -17.5 -39.2Gross borrowing requirement -193.6 -191.7 -184.1 -195.6FinancingDomestic short-term 49.7 22.0 20.0 20.0Domestic long-term 127.7 151.3 142.7 143.0Foreign loans 17.5 14.8 17.8 29.0Change in cash balances -1.3 3.6 3.6 3.6Total financing 193.6 191.7 184.1 195.6Government debtNet loan debt 690.3 895.1 1 107.9 1 313.0

% of GDP 28.2 33.2 37.3 39.8 Gross loan debt 796.4 1 001.2 1 214.0 1 419.1 Gross foreign debt 94.0 106.3 128.4 153.0

% of gross debt 11.8 10.6 10.6 10.8 Debt service costsDebt cost 57.6 71.4 88.5 104.0

% of GDP 2.4 2.6 3.0 3.2 % of expenditure 7.7 8.7 10.0 10.8 % of revenue 10.1 11.1 12.3 12.9

Medium-term estimates

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Foreign market issuance – update

Issuer Republic of South Africa

Ratings Moody's: Baa1; S&P: BBB+; Fitch: BBB+

Issue format Global SEC registered

Governing law US

Listing Luxembourg Stock Exchange

       

BOND SOAF 2019 SOAF 2020

Currency USD

Issue size USD 1,500m USD 500m USD 2,000m

Pricing date 19-May-09 26-Aug-09 02-Mar-10

Maturity date May 2019   March 2020

Price 99.19% 107.51% 99.30% 

Yields 6.99% 5.85% 5.593% 

10yr UST spot at pricing 3.24% 3.45% 3.623% 

Spread to UST 375 bps 240bps 197bps 

Coupon (payable semi annually) 6.875% 5.500%

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Net debt, contingent liabilities and provisions

• Net debt, contingent liabilities and provisions as percentage of GDP estimated to increase from 33.8 per cent (2008/09) of GDP to 53.6 per cent (2012/13)

• Within the Southern African Development Community’s macroeconomic convergence target of 60 per cent of GDP

• Guarantee exposure increases by R63.1 billion to R137.9 billion in 2009/10

• Guarantees of R231.4 billion issued in 2009/10. - Eskom (R176 bn), SANRAL (R31.9 bn), DBSA (R15.2 bn), Landbank (R3.5 bn), PRASA (R1.4 bn), DENEL (R1.9 bn) and SABC (R1.5 bn)

Net debt, contingent liabilities and provisions

Composition of provisions and contingent liabilities

73.0

53.6

20

30

40

50

60

70

80

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Per

cent

of G

DP

Contingent liabilities and net debtTolerance benchmark

End of period 2008/09 2009/10 2010/11 2011/12 2012/13

R billion Outcome Estimate

Provisions 62.5 56.9 57.2 59.7 77.1

Special Draw ing Rights 0.8 0.8 0.8 0.8 0.8

International Monetary Fund2 23.0 21.0 21.0 21.0 21.0

International Bank for Reconstruction and Development2 14.5 12.0 11.9 13.0 13.9

Multilateral Investment Guarantee Agency2 0.1 0.1 0.1 0.1 0.1

African Development Bank2 10.2 8.5 8.4 9.1 9.8

Development Bank of Southern Africa Limited3 4.8 4.8 4.8 4.8 20.0

Leave credits 9.1 9.7 10.2 10.9 11.5

Contingent liabilities 195.5 277.9 324.5 361.8 376.3

Guarantees 63.1 137.9 184.5 223.1 240.4

Post-retirement medical assistance 56.0 56.0 56.0 56.0 56.0

Road Accident Fund 42.5 49.1 48.1 45.8 42.0

Government pension funds – – – – –

Claims against government departments 17.7 17.7 17.7 17.7 17.7

Export Credit Insurance Corporation 13.4 14.4 15.4 16.4 17.4

Unemployment Insurance Fund 2.4 2.4 2.4 2.4 2.4

Other4 0.4 0.4 0.4 0.4 0.4

Total 258.0 334.8 381.7 421.5 453.4

1. Medium-term forecasts of some figures are not available and are kept constant.

2. Represents the unpaid portion of government's subscription to these institutions.

3. Represents callable capital provided for in terms of the Development Bank of Southern Africa Act.

4. Represents a liability to Reserve Bank in respect of old coinage in circulation and other unconfirmed

balances by departments.

Medium-term estimates

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Monitoring refinancing risk

-100

-50

0

50

100

150

200

250

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

2024/25

2025/26

2026/27

2027/28

2028/29

2029/30

2030/31

2031/32

2032/33

2033/34

2034/35

2035/36

2036/37

2037/38

2038/39

2039/40

2040/41

2041/42

2042/43

2043/44

2044/45

2045/46

R b

illio

n

Domestic Debt 2010/11 Potential Issuance Foreign Debt 2010/11

FV R29 bn @ 6.0% FV R29 bn @ 4.5% FV R29 bn @ 3.0%