Parliamentary Budget Office | 19th February 2014
2014 Pre-Budget Briefing
Outline
Objectives Global Economic Review and Outlook SA Economic Review and Outlook Fiscal Review and Outlook Linking the Budget with the NDP Risks Issues for Consideration
2
Objectives
To provide members with a review of the global
and domestic economic trends that influence
policy and budget decisions.
To track key policy developments since 1994.
To highlight key economic, fiscal and policy trends,
with implications for the new budget.
To highlight matters for consideration.
3
Global Economic Review and Outlook
4
Source:IMF 2013
5
-3
-2
-1
0
1
2
3
4
5
6
7
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
annu
al gr
owth
(%)
GDP growth
Actual growth Forecast: MTBPS 2011 Forecast: MTBPS 2012 Forecast: MTBPS 2013
Asian financialcrisis
Global financial crisis
National Treasury forecasts
After '94: Economic sanctions lifted andSA economy reintegration with the global economy
GEAR strategy to stabilise economy
Budget surplus
South African Economic Review and Outlook
RDP
Effects of financial crisis
ASGISA
NGPNIPF NDPPICC
Fiscal Review and Outlook6
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Revenue, Expenditure and Budget Balance as % of GDP% Budget Balance of GDP % Revenue of GDP % Expenditure of GDP
Consolidation Expansion Invest for growth Consolidation
Declining deficitIncreased public spending
High spending accumulated debt
1994: RDP increase in the delivery of social goods
1996: GEAR strategy to stimulate growth
Between 1996 and 2000: Reshape intergovernmental fiscal environment and introduce PFMA
2001: Micro Economic Reform Strategy 2010: New Growth Path
2013: NDP
2012: IPAP
Spending Trends7
Exchange Rate8
Inflation9
Source: Stats SA
Linking the 2013 Budget with the NDP
10
Global Risks 11
Slower global recovery; Tapering-down of QE by the US; Low demand for SA exports; and Depressed demand for commodities.
Domestic Risks12
Policy uncertainty and discontinuity; Labour unrest; Service delivery protests; Infrastructure bottlenecks (energy, transport;
communications, water); Infrastructure slow spending; Inflation; Debt; Interest rate hikes; Exchange rate volatility.
Issues for Consideration13
The alignment of budget programme structures with plans is ideal to monitor budget performance in respect of outcomes/goals/impact. Are there processes in place to review budget programme structures?
Is the budget reflective of policy priorities i.e. NDP, IPAP, NGP, fiscal policy objectives?
Is the country's budget policy-led? Does it adapt quickly to policy changes?
Will social safety allocations continue to expand in the face of poorer economic performance?
Will the significant infrastructure allocations be maintained if growth slows further?
Which programmes have been sacrificed to meet the budget deficit targets?
Issues for Consideration14
Will budget decisions attract foreign investors?
Are measures in place to curb the growth of, and even reduce, the public wage bill component of the national budget?
Are the growth strategies that are formulated in the country given enough time to realise their objectives before moving to the next one?
South Africa responded to the effects of the global financial crisis, low economic growth and high and persistent unemployment, with counter-cyclical fiscal policy. That is, increasing government spending during periods of weaker economic conditions to stimulate economic activity. South Africa consequently began running a fiscal deficit in 2009/10 in the wake of the global financial crisis, after 3 years of surpluses. Will South Africa continue to embrace counter-cyclical policy?
Issues for Consideration15
Certain risks facing South Africa are external, i.e. US Fed tapering, global recovery and commodity prices, but we also face local risks such as labour unrest, a growing public sector wage bill, energy shortages, slow implementation of policy and volatility of the exchange rate. What measures are in place to ensure these risks are mitigated?
Inflation targeting regime. Should the band be reconsidered?
What options does South Africa have to protect the value of the Rand?
Will further depreciation of the Rand result in missing the budget deficit target (4.3% for 2013/14)?
Prof. M Jahed
Alfred Monnakgotla
Mmapula Sekatane
Nelia Orlandi
Rashaad Amra
Thank you16