Economic outlook
Global and national outlook
Madame Speaker, Honourable Members. It is an honour to present the budget of the Province of KwaZulu-Natal in the House today. The economic outlook sets the foundation for the budget and provides the context in which the provincial budget is being tabled.
As indicated by the National Minister for Finance, Honourable Pravin Gordhan, in his budget speech two weeks ago, the South African economy is still growing at a very slow pace.
Although a moderate recovery is forecast over the 2017/18 Medium Term Expenditure Framework (MTEF), National Treasury expects the South African economy to remain fragile, growing at 1.3% in 2017 and 2% in 2018. You will know that this projected growth falls short of the growth required to meet the goals of the National Development Plan and the PGDP.
Government debts and fiscal consolidation
As correctly indicated by Hon. Gordhan, low economic growth results in lower tax revenue collection by government. This means that we have to borrow money to balance the budget. In 2017/18, the budget deficit will be at 3.1% of GDP. It, therefore, goes without saying that we need to continue with the fiscal consolidation programme so that we can stabilise our debt portfolio.
If we don’t, our debt service costs will be so high, it will crowd out service delivery. As we speak, the country spends R162.4 billion annually on debt service costs. This is unsustainable.
Debt stabilisation is one of the ingredients that will ensure that our country maintains its investment grade from rating agencies. In this regard, KwaZulu-Natal will continue to play its part in supporting South Africa’s fiscal consolidation programme.
Despite the fiscal consolidation programme, the country continues to increase its budget allocation to social services, such as basic education, health, human settlements, and so on. We also continue to invest in infrastructure development.
Economic outlook in KZN
Our provincial economic growth performance has not been that different from the rest of the country and globally. We predict a 1.1%growth rate in 2016 and a 1.5% growth rate in 2017. This sluggish provincial economic performance is, to a large extent, influenced by the contractions in the agriculture, forestry and fishing industries, mining and quarrying, electricity, as well as trade.
Given the sluggish economic performance, our unemployment rate remains high at 25.9%. What is even more worrying is that 50% of the unemployed are youth.
While the economic outlook remains bleak, there is hope that the tide is turning. We are already seeing improvements in commodity prices. The local currency has also gained strength among the major currencies. Although the strength of the local currency may affect our exports, it will ensure that imported inflation is kept in check.
In the province, there are several programmes that are being implemented that will help boost the economy and result in proper economic transformation. One of these is the Radical Agrarian Socio-Economic Transformation (RASET) led by the MEC for Economic Development, Tourism and Environmental Affairs. He will elaborate more on this programme when he tables Vote 4’s budget.
While government has made significant progress in transforming the economy over the past 23 years, more needs to be done in this regard, as the pace of transformation has been too slow. Growth without transformation would mean that inequality will increase which goes against what government wants to achieve.
National Treasury has indicated that revised preferential procurement policy regulations will take effect from 1 April 2017 and includes provisions that tenders can be targeted to empower specific groups, such as African women, among others. I reiterate that the province is committed to transformation and more meaningful participation of African people in the economy.
The budget context and fiscal policy considerations
National context
As a result of this subdued economic outlook, as well as the need to provide additional funding to new social spending priorities, it was necessary to intensify the fiscal consolidation programme, alongside additions to the budget, while also ensuring the protection of basic social services as far as possible.
Despite the fiscal consolidation and the data updates budget cuts, which I will explain shortly, the Provincial Equitable Share allocation to all 9 provinces grows by an average of 7.2%over the 2017/18 MTEF, therefore not compromising the stability of the national budget deficit.
While the 2016/17 MTEF saw significant fiscal consolidation budget cuts implemented against provinces, the 2017/18 MTEF sees these fiscal consolidation cuts being kept to a minimum.
Similarly, some fiscal consolidation cuts are also implemented against the conditional grant allocation to provinces, but these have also been kept to a minimum. Reductions on grants had to be made to support the government-wide fiscal consolidation efforts.
Having said this, though, National Treasury advised that reductions to the conditional grants over the 2017/18 MTEF compared to previous fiscal consolidation efforts, have focused on poor performing grants, as well as grants which have higher than average growth rates so that a reduction in their baselines will not severely affect service delivery.
It is against this context that I table the provincial budget today. Read more [PDF]
