Budget address by Ms B.F. Scott MEC for Finance, on tabling of the 2018/19 MTEF Budget in the Provincial Legislature
The 2018 projections by the World Bank, International Monetary Fund and the Organisation for Economic Co-operation and Development (OECD) indicate that the global economy is experiencing a cyclical recovery, showing a rebound in investment and manufacturing activity. As a result, the global economy is expected to have improved to 3% in 2017 and to remain at 3.9% in 2018 and 2019.
Following the global trend, the South African economy grew by 1% last year, and is expected to improve to 1.5% this year and 1.8% in 2019. This expected upturn will largely be driven by increased business and investor confidence, a stronger Rand and lower inflation, and will support consumer spending.
The optimism surrounding the South African economy is supported by the OECD, and the Goldman Sachs reports citing stronger activity in trading partners, which is expected to boost exports, as well as investment to support growth in 2019. However, the long-term challenges facing the country include the creation of a stronger, more inclusive and more resilient economy.
The projected recovery in the national economic performance is further confirmed by the seasonally adjusted Barclays Purchasing Managers’ Index (PMI), which rose to 49.9 index points in January 2018. The January PMI suggests that the local manufacturing sector started the year on relatively solid ground compared to previous readings.
The healthier PMI reading is also supported by the South African Chamber of Commerce and Industry's business confidence index, which increased to 96.4 in December 2017 from 95.1 in the previous month.
Economic outlook in KZN
Similar to the national projections, the provincial economic outlook is also on an upward trajectory but expected to grow by 1.2% and 1.3% in 2018 and 2019, respectively. The key sectors contributing to KZN’s economy, particularly in job creation and poverty alleviation, are: manufacturing, construction, transport, finance, tourism and others. The turnaround in the economies of our trading partners will benefit KZN, since we contribute meaningfully to the South African GDP.
Fiscal policy
Madam Speaker, despite the encouraging economic outlook, the country’s financial position is still under severe pressure, demanding that we make tough decisions. As stated by the former Minister of Finance last month, Honorable Malusi Gigaba, while tabling the national budget, I quote, “The fiscal proposals will cause discomfort, but they are necessary to protect the integrity of the public finances”.
The VAT rate was increased to 15%, while government expenditure was reduced by R85 billion over the next three years. However, while making hard choices, we have tried to ensure that our decisions are implemented in a way that protect core service delivery programmes as far as possible. A commitment was made to fund fee-free higher education and the phased-in roll-out is provided for.
The former Minister indicated that, despite an improved outlook, the government still faces a revenue shortfall of R48.2 billion in the current financial year, with carry-through. However, the consolidated deficit is projected to narrow from 4.3% of GDP this year to 3.5% in 2020/21. A narrower deficit, stronger Rand and lower borrowing costs will result in gross government debt stabilising at 56.2% of GDP by 2022/23.
These changes demonstrate that the economic and fiscal outlook has improved since the Medium Term Budget Policy Statement (MTBPS) was tabled.
This improvement should allow the rating agencies to have a more favourable outlook and should be enough to avoid a downgrade when Moody’s review the country’s credit worthiness next week Friday (23 March 2018). Full speech [PDF]
