Cape Town – South Africa’s sound institutional framework, built on the foundation of the Constitution, will hold the country in good stead as it faces uncertainty at home and abroad, the Minister of Finance Pravin Gordhan said today.
Presenting his Medium Term Budget Policy Statement in the National Assembly, a hopeful Gordhan said the country would stand firm despite slower growth and gloomy economic conditions both domestically and overseas.
He also reassured investors that South Africa remained a promising investment destination and a country with a bright future, despite recent challenges such as the Marikana shooting in August and spreading strikes in the mining sector.
“I am sure that all South Africans will identify with this intent and agree that our country is a better place than it was in 1994.
“Yet we still have to work harder to achieve economic wellbeing for all. This is a long-term project. Every step of the way, we will do our utmost to broaden public service delivery and expand participation in our economy,” he said.
While the country had held four successful national elections and had a judiciary that pursued its mandate with vigour, a free media and support from civil society played a key role in keeping the country informed to make its own choices, he said.
He said amid slower domestic growth, a widening budget deficit and lower tax receipts, the government would undertake a number of measures to improve confidence in the economy and broaden participation.
These included re-establishing orderly labour relations, improving living conditions for miners, investing in strategic infrastructure programmes, strengthening municipal finances, promoting special economic zones (SEZs), accelerating youth employment opportunities, shifting exports towards emerging markets and providing support to small businesses.
Added to this, he said, the Presidential Infrastructure Co-ordinating Commission had reviewed the details of 18 strategic infrastructure programmes, which would add to the current R845 billion infrastructure build programmes already in progress.
Business, labour and the government needed to work together to address these challenges.
“As long as there is collective and uncompromising political will, buttressed by an equally strong intent and commitment by all of us, we will overcome the challenges before us,” he said.
Gordhan said the global economy was undergoing difficult times as it adjusted to an extended period of weaker growth and increased volatility brought on by the 2008 Global Economic Crisis.
According to the IMF’s World Economic Outlook released earlier this month, advanced and developing countries will experience slow growth over the next few years.
However, global growth is expected to lift from 3.3% this year to 3.6% next year, with advanced countries seeing growth of 1.3% this year and 1.5% in 2013 and developing nations growth of 5.3% and 5.6% respectively.
Gordhan said South Africa’s Gross Domestic Product (GDP) was expected to grow by 2.5% this year – down from the 2.7% forecast in the Budget in February.
Growth is expected to reach 3.8% in 2014 and increase to 4% by 2015.
The growth in GDP will be supported by the expansion of public-sector investment in infrastructure, by new power stations coming on line and improved private-sector confidence, strong growth in the southern African region and relatively low inflation and interest rates (expected to be 5.5% next year).
The budget deficit is expected to widen from 4.2% in 2011/12 to 4.8% in 2012/13, before falling to 4.5% of GDP in 2013/14 and narrowing to 3.1% of GDP by 2015/16.
To fund its shortfall, the government is expected to borrow R165.5 billion in 2012/13 to R173.7 billion in 2013/14, before declining to R151.6 billion in 2015/16.
Much of the current financial year’s borrowing requirements – R146 billion – would be raised through the domestic market.
The government’s total net loan debt and a percentage of GDP is expected to climb from 32.8% for 2011/12 to 35.7% in the coming financial year, and to 39.2% in 2015/16.
Gordhan said higher than anticipated budget deficits have been the result of a weak recovery in tax revenue, rather than uncontrolled increases in non-interest spending.
Tax revenue for 2011/12 has been revised downwards by R5 billion – from R826.4 billion to R821.4 billion – largely with an estimated over R3.9 billion drop in Personal Income Tax and R1.7 billion shortfall in Company Income Tax.
But Gordhan stressed this would still result in an increase of 10.6% tax collected in the current financial year over the 2010/11 year (R742.7 billion).
However, he added that if economic conditions deteriorated or mining output continued to be disrupted, a further downward revision may be warranted.
He said the risk of a further sovereign rating downgrade needed to be considered, and pointed out that though the impact of recent rating actions on the yield on government debt has been very limited, further downgrades would raise the cost of borrowing.
The National Treasury was also preparing a long-term fiscal report to enhance the policy debate and make explicit implications of new public finance initiatives for future generations, he said.
The budget framework also included a contingency reserve for R4 billion next year, R10 billion in 2014/15 and R30 billion in 2015/16.
“This allows for unforeseeable claims on the fiscus – such as will arise from the recent floods – and future policy considerations,” said Gordhan.
He said South Africa faced difficulties, but that the country was not in terminal crisis.
“Let us set about proving the pessimist wrong, working together to fulfill our vision for a strong, prosperous and united South Africa,” he said. – SAnews.gov.za
Other highlights of the Medium Term Budget Speech:
- State finance institutions mooted to help fund infrastructure
- Report to assess sustainability of state’s spending options
- Depts must seek greater value for money – Gordhan
- Marikana has dented confidence in SA
- R461.1m Afcon spending was ‘cut to bone’
- Municipalities to take over housing, public transport
- Growth in SADC region hold opportunities for SA business
- Gordhan proposes measures to help state spend smarter
State finance institutions mooted to help fund infrastructure
Cape Town – Government is exploring options aimed at boosting infrastructure funding through enhancing the role of the country’s development finance institutions and by mobilising private-sector capacity, the Minister of Finance Pravin Gordhan said on Thursday.
Gordhan’s Medium Term Budget Policy Statement, which he presented in the National Assembly, reveals that the pace of public infrastructure spending has picked up over the past 12 months.
He told Parliament that the Presidential Infrastructure Co-ordinating Commission (PICC) had reviewed the details of 18 strategic infrastructure programmes, which would add to the current R845 billion infrastructure build programmes already in progress.
He said the R845 billion build programmes would accelerate energy, transport, water and housing investment, open up mining and industrial opportunities and give greater impetus to building economic linkages across Southern Africa.
“Strategic infrastructure programmes represent large and long-term financial commitments,” he said, adding that the budget provides for part of the funding required, while state-owned enterprises are making substantial investments in their areas of responsibility.
While the bulk of infrastructure spending is financed from the balance sheets of state-owned companies, the fiscus funds the provision of social infrastructure, delivered primarily through provinces and municipalities, he said.
The Medium Term Budget Policy Statement, however, said growth in private-sector investment had slowed over 2011, as local businesses refrained from developing new projects with an environment of weaker business confidence.
In contrast, gross fixed-capital formation by the public sector grew at 10.9% during the first half of this year, with Eskom, Transnet and the SA National Roads Agency Limited (Sanral) accounting for 95% of all capital spending by state-owned enterprises.
Government spending on water, sanitation and road infrastructure had also picked up, supporting a nascent recovery in the construction sector.
The National Treasury believes that as the economic environment improves, rising confidence should result in a gradual improvement in private-sector gross fixed-capital formation.
It said with private businesses accounting for about 71% of economic activity and over 75% of jobs, it was crucial to create a buoyant private sector that works in partnership with an effective government.
Domestic growth is expected to remain modest next year and likely to increase over the next three years, but Gordhan added that faster growth was needed to create the jobs South Africa needs. – SAnews.gov.za
Report to assess sustainability of state’s spending options
Cape Town – The National Treasury is expected to next month release the preliminary findings of a long-term fiscal report that will assess the sustainability of spending options in light of demographic and economic projections.
The report, says the Medium Term Budget Policy Statement which was released today by the Minister of Finance Pravin Gordhan, will look at growth projections for different age groups and how this will affect public spending over time and will also consider the limits to expenditure in low, medium and high-economic growth scenarios.
The National Treasury says that unlike many developed economies, the effects of population ageing will not begin to fully exert pressure on the South African fiscus for several decades.
The report is expected to look at how, for example, the slowdown in population growth and in the number of those eligible for child support grants is likely to effect budgets, particularly as such a slowdown will mean reduced pressure on the fiscus from social grants over the next two decades.
Added to this, the school-age population is beginning to fall, underscoring the need to improve the quality of education rather than increasing the quantity of resources available.
The long-term fiscal report will model the impact of a variety of policy changes, including the introduction of national health insurance and proposals contained in the National Development Plan, said Gordhan.
The National Treasury is to publish the full report early next year, when data from the 2011 census will also be included. – SAnews.gov.za
Depts must seek greater value for money – Gordhan
Cape Town – Departments will have to consolidate programmes and activities, and seek greater value for money from what is available in the Fiscus, the Minister of Finance Pravin Gordhan said today.
Presenting his Medium Term Budget Policy Statement, Gordhan said budget allocations to departments remain largely unchanged over the 2012 Budget, reflecting the challenging economic environment and fiscal constraints that the government is operating in.
The revised estimate of total appropriated expenditure in 2012/13 is R967.5 billion – R1.9 billion less than the estimate in the 2012 Budget and 8.9% more than the R888 billion the government spent in 2011/12.
In all, R1.5 billion will be allocated to cover the costs of higher than expected salary adjustments in national departments following this year’s public-sector wage settlement.
An additional R4 billion will be added to the provincial equitable share for higher-than-anticipated salary costs related to the public-sector wage settlement, while an extra R87.3 million will added to the Further Education and Training (FET) colleges grant to cover the cost of the wage settlement.
A further R1.5 billion of balances in 2011/12 will be ploughed back into the fiscus, while R3 billion that will not be spent in 2012/13 and has been declared as savings by departments.
An extra R440.1 million refunded to departments for monies paid directly into the National Revenue Fund from department-specific activities.
Of the R949 billion in total allocations next year, 47% will go to national departments, 44% to provinces and nine percent to local government.
Provinces will get an additional R366 million to spend on infrastructure in the health sector, an extra R180 million for the health infrastructure grant and a further extra R186 million to add to the hospital revitalisation grant.
Provinces will next year get R418 billion in allocations, rising to R478 billion in 2015/16.
Gordhan said changes to the provincial grant programmes over the next three years would include additional funds allocated to the comprehensive HIV and Aids grant to compensate for a reduction in donor funding and to allow for rising treatment numbers.
Funds will also be added to the human settlements development grant for upgrading informal settlements.
Added to this spending on provincial roads will continue to increase and increased allocations will be made to the community library services grant.
Gordhan said provinces spent 98.7% or R368.3 billion of their adjusted budget of R373 billion in 2011/12, while national departments, which spent 97.7% or R498.9 billion of their R510.9 billion adjusted appropriation.
Spending on compensation of employees by provinces accounted for 59% of expenditure in 2011/12.
Though underspending from provinces, which are primarily responsible for delivery of health and education, amounted to R3.5 billion, Gordhan said there were signs of capital spending having improved in the first six months of 2012/13.
He said in the first six months of 2012/13, provinces had spent R189.2 billion or 48.7% of their main appropriation for the year, while national departments had spent 47.1% or R257.1 billion of their R546.4 billion in allocations over the same period.
He called on provincial governments to modernise their supply chain management systems to deliver projects on time, at the right price and of the required quality.
“We will channel more funding to provinces that adopt transparent systems and demonstrate their readiness to implement projects effectively,” he said. – SAnews.gov.za
Marikana has dented confidence in SA
Cape Town – The Marikana shooting in August and the industrial action which has followed in its wake, have dented confidence and lowered growth prospects for the remainder of the year, the Minister of Finance Pravin Gordhan said.
The Medium Term Budget Policy Statement, presented by Gordhan in Parliament today, shows the National Treasury estimates that about R10.1 billion worth of production has been lost to platinum and gold mining strikes and stoppages since the beginning of this year.
Declining mining output and the spread of strikes had also depressed manufacturing, logistics and services, and had impacted negatively on exports, employment, tax revenues and Gross Domestic Product (GDP).
Following a sharp decline in platinum, the real value in mining contracted by 6.3% in the first half of 2012 compared with the same period last year.
In the year to August mining output fell by 3.3%, with production of platinum down by 15.3%.
Over the first eight months of the year, the value of exports of platinum fell by 21.9%, while exports of coal and chemical products remained robust.
Disruptions to platinum output affected trade with Germany, Japan and the US, while China’s higher demand for coal offset lower steel imports.
However, continued strong growth in iron ore, spurred by Chinese demand, had offset some of the decline in platinum, gold and coal. – SAnews.gov.za
R461.1m Afcon spending was ‘cut to bone’
Cape Town – The National Treasury has allocated an extra R461.1 million for South Africa’s hosting of the 2013 Africa Cup of Nations (Afcon) soccer tournament, but no spending will go towards “extravagances”, says Deputy Minister of Finance Nhlanhla Nene.
Speaking at a media briefing held shortly before the Minister of Finance Pravin Gordhan presented his Medium Term Budget Policy Statement in the National Assembly on Thursday, Nene – who is the chairperson of the tournament’s finance committee – said he had ensured that spending on the tournament had been “cut to the bone”.
Nene said the new soccer stadiums built for the 2010 World Cup had made it easier to finance the tournament.
He said hosting Afcon would be a boon to the country, particularly with the benefit that sport plays in bringing South Africans together.
South Africa – which was only expected to host the tournament in 2017 – agreed to host the tournament next year after the turmoil in Libya, the original 2013 host country.
Of the R461.1 million to be spent on the tournament, R323 million will go to national departments to cover costs associated with hosting the tournament, including security, protocol and migration services.
A further R15 million for health-related costs associated with hosting the tournament will be allocated to provinces and R123.1 million will go to cities to cover the costs associated with hosting the 2013 Africa Cup of Nations tournament.
Presenting his Medium Term Budget Policy Statement in the National Assembly, Gordhan said for the present year, the February budget provided for an appropriation of R969.4 billion, which will come to R967.5 billion on taking into account changes proposed in the Adjustments Appropriation Bill.
A total of R3 billion that will not be spent in 2012/13 has been declared as savings by national departments, while a further R1.5 billion of balances in 2011/12 will be ploughed back into the fiscus.
The main adjustments that have had to be made this year are for the higher-than-expected salary increases, which amounted to R1.4 billion in national departments and R4 billion in provinces.
Other additional allocations made by the National Treasury include:
- R450 million allocated to rehabilitate the Mthatha airport
- R375 million for community development projects that support environmental management and conversation under the Expanded Public Works Programme (EPWP)
- R187.7 million for VAT payments for the purchase of the new Antarctic research vessel, the SA Agulhas II
- R118.3 million for contractual penalties incurred by Denel Saab Aerostructures related to the A400M aircraft contracts
- R80.7 million for additional game rangers to combat rhinoceros poaching in the Kruger National Park
- R63 million to deploy vessels and resources in joint anti-piracy operations in the Mozambican Channel
Gordhan said spending on investment in transport infrastructure – which accounts for R80 billion next year – will rise by 8.4% a year over the next three years.
He said spending on rolling stock for rail and signalling infrastructure will increase by nearly 20%.
He said the number of households with access to clean water now stands at over 13 million, more than double the 1994 number.
A total of R234 billion will be spent next year on education, including allocations to culture, sports and education.
“In order to get our children off to the best possible start in life, we will continue to increase funding for the Grade R year and the school infrastructure backlogs programme will be stepped up,” said Gordhan.
The government will spend R132 billion on health care next year, which includes funding for improved diagnostic test for TB, additional allocations for its HIV/Aids programme and continued investment in hospitals and health infrastructure.
A total of R136 billion will be spent on social grants, road accident benefits, unemployment insurance and various social development and welfare services next year, with the number of social grant beneficiaries is expected to rise to 17 million by 2015.
Gordan said the National Treasury had received useful comments from many South Africans on its proposals for promoting household saving and reforming the retirement landscape and broadening social security.
The National Treasury will continue to consult widely in taking the proposals forward. – SAnews.gov.za
Municipalities to take over housing, public transport
Cape Town – Building new low-cost houses and rolling out public transport would be devolved to municipalities and greater technical support will be provided in rural areas, the Minister of Finance Pravin Gordhan said on Thursday.
Tabling his Medium Term Budget Policy Statement in the National Assembly, Gordhan said local government would also see a R500 million reduction in their equitable share to offset unspent conditional grant monies owed to the National Revenue Fund.
Transfers to municipalities would rise from R78 billion this year to over R100 billion in 2015/16.
He said from reprioritisation and drawdowns on the contingency reserve, a total of R12.3 billion is added to the local government budget framework over the next three years, including spending by national departments on behalf of municipalities.
Increased funding is also proposed for the integrated national electrification programmes and projects to improve infrastructure maintenance and stem leakages of water and electricity will be supported.
Gordhan said discussions were currently underway with metropolitan cities on a support strategy to address spatial patterns that exacerbate social inequality.
This will include further investment in public transport systems, development of settlements closer to work opportunities and greater support for small businesses.
He said the challenge to mayors and councils was to ensure that their delivery machinery was ready for the transformation of towns and cities.
“Our economic progress and social development will be largely determined by the pattern of urban development over the decades ahead,” he said.
He said allocations to rural municipalities for the delivery of water, sanitation and electricity would also be increased.
“We also expect provincial governments, who are key role players in rural development, to accelerate the provision of agricultural services in these municipalities,” Gordhan said. – SAnews.gov.za
Growth in SADC region hold opportunities for SA business
Cape Town – With the continued gloomy outlook in Eurozone countries and a slow down in growth in a number of developing economies, a rapidly growing Sub-Saharan Africa holds clear opportunities for South African businesses, the Minister of Finance Pravin Gordhan said on Thursday.
Tabling his Medium Term Budget Policy Statement in the National Assembly today, Gordhan said opportunities in sub-Saharan Africa had benefited many South Africa mining, manufacturing and retail companies.
The IMF’s World Economic Outlook, released earlier this month, estimates that sub-Saharan Africa will grow by 5% this year and 5.7% next year – this compares to growth of just 1.3% in advanced economies and 5.3% in developing countries this year.
While exports to the EU fell 0.9%, while those to the US remained flat and those to China and India grew by just 1.1% and 0.7% respectively, exports to Southern African Development Community (SADC) countries grew 2.7%.
Gordhan said SADC was now South Africa’s second largest export market after the EU – expected to account for 21% of exports this year.
The SADC region is expected to account for 12.2% of exports this year, up from 9.8% in 2000 and putting it just ahead of China which the National Treasury expects will account for 12% of SA exports this year.
The Medium Term Budget Policy Statement says the share of manufactured exports to the region (21.8%) have increased rapidly over the past few years – on the back of demand in chemical products, machinery and appliances, particularly mining equipment.
It says with strong growth forecast for the next five years, the SADC region could become South Africa’s biggest market for manufactured exports.
Meanwhile, export volumes fell by 6.3% in the second quarter compared with the same period last year, after a decline of 1.5% in the first quarter.
Over the first eight months of the year, the value of exports of platinum fell by 21.9%, while exports of coal and chemical products remained robust.
In the first eight months of the year, however, imports increased by 20%, driven by strong increases in oil, machinery, vehicles and appliances.
Imports are now 4% above 2009 levels, while exports are 13% below their highs.
With the fall in exports and rise in imports, the current account deficit has widened sharply over the past year and is expected to average 5.9% this year, up from 3.3% in 2011.
Over the next three years, the current account deficit is expected to moderate to 5.5%. – SAnews.gov.za
Gordhan proposes measures to help state spend smarter
Cape Town – The Minister of Finance Pravin Gordhan today detailed several initiatives to reign in the widening deficit and improve the impact of spending by, among other things, investing the balance of resource allocation in new infrastructure.
Presenting his Medium Term Budget Policy Statement in the National Assembly, Gordhan said the budget deficit was expected to widen from 4.2% in 2011/12 to 4.8% in 2012/13, before falling to 4.5% of GDP in 2013/14 and narrowing to 3.1% of GDP by 2015/16.
The National Treasury has proposed reforms that will focus on developing a procurement system that prioritises value for money and that strengthens the fight against corruption.
These initiatives will be led by a Chief Procurement Officer in the National Treasury.
Gordhan said the National Treasury had completed the preparatory work needed to set up the position, drawing on international best practice, and key appointments would be announced shortly.
The National Treasury also plans to introduce safeguards, such as reviews by the Auditor-General and the Parliamentary Standing Committee on Public Accounts, for tenders above a certain amount.
It also wants to assign authority and improve capacity within the National Treasury to investigate the value for money associated with tenders.
The National Treasury also wants to institute a series of detailed expenditure reviews to consider the outcomes that are achieved from the use of public finances.
There is also a plan to strengthen the anti-corruption system by providing additional
resources to agencies such as the Office of the Public Protector, the Anti-Corruption Task Team and others, he said.
The government is expected to spend R1.06 trillion in the current financial year, rising to R1.1 trillion in 2013/14, R1.2 trillion in 2014/15 and R1.3 trillion in 2015/16.
Of the government’s R1.1 trillion expenditure for 2012/13, the bulk will be spent on health and social protection (R246 billion) and education (R220 billion).
The biggest rises in spending between 2012/13 and 2015/16 are in employment and social security (9.1%) and local government and housing at nine percent.
The government had decided not to make any upward adjustment of the spending projection set out in the 2012 Budget, tabled in February, over the next two years – namely in 2013/14 and 2014/15.
In preparing their medium-term plans – for spending over the next three years – departments have been required to reprioritise spending away from underperforming programmes and identify savings within existing budgets.
Over the next three years the real growth in compensation of state employees would average 1.3%, while capital payments would grow at 4.3%.
The wage agreement reached this year between the government and public-sector unions was higher than projected in Gordhan’s 2012 Budget tabled in February, and will cost the R37.5 billion over the next three years.
This will absorb a large portion of the allocations the National Treasury had made available through reprioritisation.
Gordhan wants the government in coming years to take a more deliberate approach to managing overall employment and wage trends across the public sector, including state-owned entities, by in particular curtailing unwarranted growth in personnel numbers.
To free up additional allocations, the National Treasury has also reprioritised R40 billion in funds, which combined with drawdowns from the contingency reserve will allow budget baselines to be revised without effecting an increase in government spending.
The funds will be shared between national, provincial and local government, to help pay for the higher cost in the public-sector wage bill and to meet government priorities. – SAnews.gov.za
