BER DATA BANK

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Prospects for the World SA economies
2003 Medium Term Budget Policy Statement Macro-eco
nomic Policy
Ben Smit (BER) 17 November 2003
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Outline

• Macro-economic forecasts
• Recent SA economic developments
• Treasury forecast
• Previous Treasury forecasts
• Macro-economic policy aspects
• General
• Fiscal variables
• Inflation targeting
• Structural/developments issues

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Prospects for the World SA economies
Macro-economic Forecasts
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Recent SA economic developments Remarkable
macro stability

• Remarkable macro stability

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SA economy GDP growth
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SA economy BoP as of GDP
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SA economy Inflation (CPIX)
6 upper target
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Longest business cycle upswing since WW II
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Recent SA economic developments Remarkable
macro stability

• Remarkable macro stability
• Strong and volatile exchange rate

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Emerging other currencies vs USA
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SA economy R/ vs PPP
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Real trade-weighted rand back to levels of early
1998
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Recent SA economic developments Remarkable
macro stability

• Remarkable macro stability
• Strong and volatile exchange rate
• Limited slowdown in 2003

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RMB/BER Business Confidence Index
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Investec Purchasing Managers Index
Oct 2003
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Treasury forecast
2003 2004 2005 2006
GDP growth
- National Treasury 2.2 3.3 3.7 4.0
- BER 2.0 3.1 3.2 2.4
- Consensus 2.0 3.0 3.5
Inflation (CPIX)
- National Treasury 6.9 4.9 5.4 5.1
- BER 6.8 5.2 5.7 5.7
- Consensus 6.8 4.8 5.1
BoP Current account ()
- National Treasury -0.8 -1.4 -1.7 -2.0
- BER -1.3 -1.5 -1.9 -1.1
- Consensus -1.0 -1.2 -1.0
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Previous Treasury forecast
2000 2001 2002 2003
GDP growth ()
- National Treasury 3.5 3.4 2.8 3.5
- BER 3.4 3.3 2.6 3.0
- Actual 3.5 2.8 3.0 ?
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Prospects for the World SA economies
Macro-economic Policy Aspects
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Macro-economic policyGeneral comments

• Two classes of economic policy
• Stabilization policies policies designed to
  moderate short-term fluctuations in the economy
• Structural policies policies aimed improving
  the longer-term performance of the economy
• Macro-economic policy
• Monetary and fiscal policy
• Fiscal policy
• policy with regard to structure and level of
  government spending, taxation and financing of
  deficits
• Stabilization - changes in above
• Government expenditure, taxation and financing
  aspects covered in MTBPS both stabilization
  (macro) and structural issues

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Fiscal variables consumer expenditure ()
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Fiscal variable fixed investment ()
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Taxes total tax burden
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Taxes Direct as of total
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Taxes Personal Tax Rate
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Government savings ()
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Deficit before borrowing
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Fiscal variables government debt ()
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2003 MTBPS projections
2002 2003 2004 2005 2006
Total revenue () 24.8 24.8 24.8 24.8 24.8
Total expenditure () 26.0 27.5 28.0 28.0 27.7
- Debt service cost () 4.2 3.9 3.9 3.8 3.7
- Other expenditure () 3.4 10.1 5.7 4.6 3.1

Deficit () 1.2 2.6 3.2 3.1 2.8
Financing
- Domestic (ST) (Rbn) 6000 6000 8000 8000
- Domestic (LT) (Rbn) 24772 31358 28196 28931
- Foreign loans (Rbn) 1848 6696 12068 4302
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2003 MTBPS projections (continued)
2002 2003 2004 2005 2006
Government debt () 37.9 37.8 38.8 39.1 39.0

Change in tax revenue
from 2003 Budget (Rbn) -4.6 -5.3 -3.4

Change in expenditure
from 2003 Budget (Rbn) 8.0 12.0 17.0
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Inflation targeting

• Target as continuous 3 6 target from annual
  average
• Target 3 6 for 2006 and beyond
• Escape clause as explanation clause
• Transparency

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Structural/Developmental issues

• strategy for reinforcing investment and
  broadening participation in the SA economy
• Exchange public infrastructure capacity
• Expanded public works programme
• SMMEs
• Expanding education and training
• Deepening social security programmes
• Privitazation (R13bn ? R5bn over 3 years)
• Tax amnesty
• Salary and wages 6 (2004), 5 (2005), 5
  (2006)
• HIV/AIDS

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