Nedbank: Medium Term Budget Policy Statement

26 Oct.

Nedbank Economic Commentary: Medium Term Budget Policy Statement.

Growth revised down and deficits higher, but a positive message on the composition and effectiveness of spending as well as on encouraging private sector investment and job creation.

• A cautious statement against the background of a vulnerable global climate but with the right emphasis on investment, jobs and private sector participation in key sectors.
• Growth forecasts revised down as faltering developed economies hurt export growth.
• The budget deficit over the forecast period (2011/12 – 2014/15) rises from already high levels to 5,5% (from 5,3%), 5,2% (4,8%), 4,5% (3,8%) and 3,3%.
• Overall debt remains sustainable, but the Minister signals caution against borrowing in volatile markets.
• Emphasis on growth-enhancing spending and cutting out inefficiencies, extravagances and waste.
• Tax incentives for industrial investment, technology and training and incentives for industrial development zones.

Economic background and assumptions

The Medium-Term Budget Policy Statement (MTBPS) was presented against a backdrop of an uncertain global economic trajectory which has dimmed domestic growth prospects. South Africa faces substantial risks from the global economy. The global recovery has lost momentum, while European sovereign debt difficulties have escalated and threaten the stability of banking sectors in some of the countries.

The MTBPS emphasised the need to promote job creation, invest in public infrastructure as well as encourage private sector participation in key sectors. In an environment of moderate economic growth and still depressed revenue growth, the need for growth-enhancing government expenditure has risen. Accommodative monetary and expansionary fiscal policies are likely to support the economy in the coming years. Growth forecasts have been revised downwards, the budget deficit rises from already high levels and debt servicing has become the government’s fastest growing expenditure item. Debt service costs are projected to reach R115 billion in 2014/15.

A less favourable global environment combined with a domestic slowdown, related partly to labour strikes in key production sectors, have prompted the National Treasury to revise its growth forecasts downwards. Economic growth is forecast at 3,1% in 2011, down from the February 2011 projection of 3,4%, but growth is projected to pick over the remainder of the Medium-Term Expenditure Framework (MTEF) period (2011/12 – 2014/15).

A key driver of growth will be household expenditure, but its growth rate will be limited by the still weak job market, consumer indebtedness and subdued growth in real consumer incomes. Fixed investment spending growth projections have been revised downwards, but will remain reasonable on the back of public sector investment. …

See the full commentary under Budget Comments

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