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South Africa’s medium term budget will be a defining litmus test on whether the government can take the country out of an economic slump or send it in the direction of a financial crisis.

#MTBPS2020: A tightrope walk for Finmin Mboweni

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South Africa will be waiting in anticipation tomorrow to hear what the Finance Minister, Tito Mboweni has to say as he addresses government plans for the next three years at the medium-term budget policy statement. CNBC Africa&#8217;s Kopano Gumbi filed this special report.

What will the outcome be for finmin Mboweni’s MTBPS?

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As Public Enterprises Minister, Pravin Gordhan announced a special paper on Eskom and unemployment hit a 11 year low the Currency took a hit. The rand reversed the gains of recent past, losing as much 20 cents to the dollar. Will tomorrow&#8217;s medium-term budget policy statement by Finance Minister Tito Mboweni also wag the currency tail? What will happen to our state owned enterprises? Xhanti Payi, Lead Researcher and Economist at Nascence Advisory joins CNBC Africa for pre medium-term budget policy statement (MTBPS).

Here’s what finmin Mboweni’s MTBPS should address to revive the economy

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SA finance minister Tito Mboweni highlighted how agricultural sector has potential to create much needed jobs in his maiden medium term budget policy statement. Agricultural Economist Hamlet Hlomendlini joins CNBC Africa for more.

#MTBS 2018: Finmin Mboweni on the SA’s agricultural potential

By Monique Vanek
Despite an economy on the ropes, evident by slower than expected growth, South Africans can breathe a sigh of relief as forecasted increases in value added tax (VAT) and other anticipated tax hikes are not expected. The Medium Term Budget Policy Statement (MTBPS) states that “increases in major tax instruments will be avoided unless the economic environment requires it.
“At this stage, revenue projections assume no changes to tax rates, but provide for annual adjustments to personal income tax brackets, levies and excise duties in line with inflation”. 
Despite hopes that chicken would be made VAT free, no mention was made of this, instead the MTBPS states that as per the recommendations of a panel of experts which were commissioned to investigate mitigating the effect of the VAT rate increase introduced in April on low-income households, government proposes to zero-rate white bread flour, cake flour and sanitary pads from 1 April 2019.

SA’s #MTBPS2018: These are the tax changes government is warning of

By Monique Vanek
The Medium Term Budget Policy Statement (MTBPS) has confirmed that the South African Revenue Service (SARS) under its former Commissioner Tom Moyane delayed paying tax refunds, which is now hurting revenue.
According to its current Commissioner Mark Kingon, whether this was intentional or not is up for debate but he believes it was not intentional.
Kingon in a closed media briefing said SARS is currently evaluating why refund payments slowed.
The MTBPS points a negative picture of what happened to tax revenues under Moyane’s tenure and the aftermath: “A backlog of VAT refunds at SARS, and an underestimation of refunds due, has led to an overly optimistic view of revenue growth. Net VAT collections account for about R20 billion of the in-year revenue shortfall. Two factors account for the revision in net VAT. The VAT refund estimate has been revised upwards by R9 billion, and about R11 billion will be paid out to clear the backlog in the VAT credit book (see table).
“The remaining R7.4 billion of the shortfall in the current year mostly reflects slower corporate income tax collections due to weak growth in wholesale and retail trade, manufacturing and transport. Personal income tax continues to be negatively affected by job losses, moderate wage settlements, lower bonus payments and a slower expansion of publicsector employment”.
The MTBPS also states: “In 2017/18, for the first time since the 2008 global financial crisis, tax revenue growth did not exceed GDP growth. Revenue shortfalls have widened over the past four years, with under-collections rising from R7.4 billion in 2014/15 to R49 billion in 2017/18. These shortfalls would have been larger were it not for increases in personal income, dividend withholding, capital gains and other taxes. Revenue collections in 2017/18 were R0.8 billion lower than estimated in the 2018 Budget. Revenue collection for the first six months of 2018/19 grew by 10.7 per cent compared with the same period last year. However, the technical recession experienced in the first half of the year has begun to feed through to revenue collection, which has slowed. Weaker economic growth, alongside a once-off payment of overdue VAT refunds, will result in an in-year revenue shortfall now estimated at R27.4 billion, relative to the 2018 Budget estimate.”

#MTBPS2018: SARS withheld tax refunds under former Commissioner Moyane, these are the consequences…

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There could be anything from increased vat to zero rated chicken. The much anticipated budget policy speech will be delivered tomorrow. CNBC Africa correspondent Thasami Soobyah has more.

Expectations for policy change ahead of finmin Mboweni’s MTBPS address

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David French, Tax Consulting Director at Mazars South Africa joins CNBC Africa to talk about expectations from Finance Minsiter Mboweni&#8217;s Medium Term Budget Policy Statement.

Expectations from finmin Mboweni’s Medium Term Budget Policy Statement

On 25 October, South Africa’s (Baa3 negative) Finance Minister Malusi Gigaba presented the country’s medium-term budget, which signals a marked credit-negative departure from earlier fiscal consolidation efforts.
<div id="attachment_127928" style="width: 610px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-127928" class="wp-image-127928 size-full" src="http://cnbc.africa/wp-content/uploads/2017/06/moody_s_reuters.jpg" alt="" width="600" height="368" />A Moody&#8217;s sign is displayed on 7 World Trade Center, the company&#8217;s corporate headquarters in New York, February 6, 2013. REUTERS/Brendan McDermid</div>
&nbsp;
<p style="line-height: 18.0pt; background: white; font-variant-ligatures: normal; font-variant-caps: normal; orphans: 2; text-align: start; widows: 2; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial; word-spacing: 0px; margin: 0cm 0cm 7.5pt 0cm;">The medium-term budget policy statement (MTBPS) revealed sizeable slippage in fiscal revenue (estimated by the National Treasury at 1.1% of GDP) in fiscal 2017, which ends 31 March 2018, relative to the February budget. The revenue shortfall is a key driver behind the National Treasury’s projections for the headline fiscal deficit of 4.3% of GDP in fiscal 2017, the highest level since 2009 and a substantial increase from 3.4% in the budget presented in February 2017.
<p style="line-height: 18.0pt; background: white; font-variant-ligatures: normal; font-variant-caps: normal; orphans: 2; text-align: start; widows: 2; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial; word-spacing: 0px; margin: 0cm 0cm 7.5pt 0cm;">Significantly, the MTBPS envisages budget deficits remaining at 3.9% of GDP over the next three fiscal years, in contrast with targeted gradual fiscal consolidation tabled in the February budget. As a result, the National Treasury now expects accelerated accumulation of public debt, and expects public debt to GDP to exceed 60% of GDP by fiscal 2021, a notable departure from the debt stabilization objective outlined in the February budget.
<p style="line-height: 18.0pt; background: white; font-variant-ligatures: normal; font-variant-caps: normal; orphans: 2; text-align: start; widows: 2; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial; word-spacing: 0px; margin: 0cm 0cm 7.5pt 0cm;">Concurrent with the debt burden increasing almost 7% annually between fiscal 2016 and fiscal 2020, the cost of borrowing has risen. According to Treasury projections, the interest burden will be 15% of revenue by 2020-21, which exceeds the 9.8% median of similarly rated sovereign peers. In our view, at this level, the cost of debt servicing is crowding out pro-growth expenditures while raising mandatory recurrent spending.
<p style="line-height: 18.0pt; background: white; font-variant-ligatures: normal; font-variant-caps: normal; orphans: 2; text-align: start; widows: 2; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial; word-spacing: 0px; margin: 0cm 0cm 7.5pt 0cm;">The absence of fiscal consolidation both in terms of containing the fiscal deficits and reducing mandatory recurrent spending is credit negative, undermining debt sustainability and eliminating room for deploying fiscal stimulus in the event of a negative economic shock. Fiscal risks stemming from the relatively rapid debt increase are exacerbated by a continued increase in government guarantees to state-owned enterprises, where almost half is concentrated in Eskom, which generates 95% of South Africa’s electricity.
<p style="line-height: 18.0pt; background: white; font-variant-ligatures: normal; font-variant-caps: normal; orphans: 2; text-align: start; widows: 2; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial; word-spacing: 0px; margin: 0cm 0cm 7.5pt 0cm;">Moreover, the lack of fiscal consolidation in the budget is also a setback to already feeble business confidence and growth. The lack of fiscal prudence indicated by the budget will undermine growth in an economy in a recession since first-quarter 2017 with weak economic activity, according to recent high-frequency indicators.
<p style="line-height: 18.0pt; background: white; font-variant-ligatures: normal; font-variant-caps: normal; orphans: 2; text-align: start; widows: 2; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial; word-spacing: 0px; margin: 0cm 0cm 7.5pt 0cm;">The current MTBPS is the first fiscal policy document (i.e., budget or mini-budget) in the past several years that does not have the objective of fiscal consolidation.
<p style="line-height: 18.0pt; background: white; font-variant-ligatures: normal; font-variant-caps: normal; orphans: 2; text-align: start; widows: 2; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial; word-spacing: 0px; margin: 0cm 0cm 7.5pt 0cm;">In our view, unless the government presents a credible fiscal consolidation plan in the February 2018 budget, debt sustainability is at risk.
<p style="line-height: 18.0pt; background: white; font-variant-ligatures: normal; font-variant-caps: normal; orphans: 2; text-align: start; widows: 2; -webkit-text-stroke-width: 0px; text-decoration-style: initial; text-decoration-color: initial; word-spacing: 0px; margin: 0cm 0cm 7.5pt 0cm;">However, with lower levels of revenue than formerly projected, the thrust of the adjustment would need to come from the expenditure side, which will be challenging to achieve amid rising spending pressures in the run up to 2019 elections.

Moody’s warns South Africa: Medium-Term Budget Signals Credit-Negative Change in Policy Direction

Jameel Ahmad | FXTM
The rand has spent the last two weeks riding alternating waves of political uncertainty and weakening economic sentiment. Wednesday’s speech by Malusi Gigaba left the emerging market currency open to steep losses against the greenback following a downwards revision of economic growth from 1.3% to 0.7%, writes FXTM’s Global Head of Currency Strategy and Market Research, Jameel Ahmad.
<div id="attachment_106462" style="width: 810px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-106462" class="wp-image-106462 size-full" src="http://cnbc.africa/wp-content/uploads/2017/03/Rands-Wikipedia.jpg" alt="" width="800" height="639" />Photo: Wikipedia</div>
The financial markets perceived Gigaba’s maiden budget statement as very negative. The new Finance Minister slashed GDP forecasts and announced that the treasury would increase international borrowing. His speech sent the rand tumbling against all major currencies on Wednesday afternoon, and ZAR was testing R13.9915 – its lowest intraday level since December 2016 – within hours of the announcement. The Rand has continued to encounter selling pressure in the aftermath of the budget statement, with the USDZAR touching a new 2017 high, above 14.20 just one day following the budget statement.
This latest blow is ill-timed, coming hot on the heels of a particularly tumultuous week. An unexpected cabinet reshuffle last Tuesday wiped 0.5% from the currency within minutes of the news breaking. Selling pressure was not initially severe, which suggested political risk premium had already been priced in the Rand and provided some support to the currency. However, this confidence did not last long, as speculation mounted that President Zuma was considering dismissing his deputy, Cyril Ramaphosa.
The negative headlines surrounding South Africa are encouraging investors to price risk premium back into the Rand. However, the fortunes of the currency have not been helped by a recovery in momentum of the US Dollar. In the wake of an unexpected cabinet restructure and a “brutally honest” mid-term budget, investors will be watching to see how the rand performs as the ANC elective conference approaches at the end of 2017. The decline in GDP per capita over the last two years, coupled with a soaring unemployment rate, is likely to weigh heavily on the ZAR, and investor focus on economic data will likely intensify as a result of the budget statement this week.
The aftermath of last week’s selling pressure does suggest the rand is still sensitive to political risk, but domestic politics is unlikely to be the only factor weighing it down. The greenback concluded last week on a high, rallying on news that the US Senate had passed key legislation that would allow President Trump’s Republicans to push ahead with promised tax reforms. A widening spread between Japanese and US government bonds also prompted a sharp rise in USDJPY last week, suggesting that the rand’s fall was not solely down to internal political machination.
For regular market updates and commentary, follow Jameel on Twitter <a href="https://twitter.com/Jameel_FXTM">@Jameel_FXTM</a>

South African Rand Under Selling Pressure After a Troubling Week

Fitch Ratings-Hong Kong/London-26 October 2017: South Africa&#8217;s (BB+/Stable) Medium-Term Budget Policy Statement (MTBPS) projects a sharp fall in fiscal revenue, but has no measures to contain the impact on deficits and debt, Fitch Ratings says. This suggests that the change in direction of policy making away from a focus on fiscal consolidation that we anticipated as a consequence of March&#8217;s cabinet reshuffle is under way and occurring faster than we had expected.
<a href="http://cnbc.africa/category/insights/budget-day/mtbps-2017/">Click here for more on MTBPS</a>
Wednesday&#8217;s MTBPS is the first major fiscal announcement since Malusi Gigaba was appointed Finance Minister in March. The government no longer forecasts stabilising debt, having raised its forecast for gross loan debt (its measure of consolidated government debt) to 58.2% of GDP for the financial year to end-March 2020 (FY19/20) from 52.4% previously. It expects a further rise to 60.8% by FY21/22.
This reflects large upward revisions in the Treasury&#8217;s consolidated government deficit forecast, to 4.3% of GDP (1.2pp wider than in the February budget) this year with only a moderate improvement to 3.9% next year and no further reduction in the two following years. Previously, the government had projected a decline to 2.6% in FY19/20.
The revisions reflect significant revenue shortfalls, of ZAR50.8 billion (1.1% of GDP) in FY17/18, as a result of lower GDP growth (now predicted to be 0.7% in 2017, down from 1.3% in the budget) and lower-than-expected tax buoyancy (the increase in tax revenues for a given increase in GDP). The government&#8217;s GDP growth forecasts are now in line with or lower than Fitch&#8217;s. However, there remains a substantial risk of additional revenue slippage if tax buoyancy fails to recover.
The MTBPS also raises questions about the role of the non-interest expenditure ceiling as a key fiscal policy anchor. The statement predicts that spending will exceed the ceiling set in February&#8217;s budget by ZAR4 billion in FY17/18, driven by the recapitalisation of South African Airways and South African Post Office. The amount is small at 0.1% of GDP, and the government is looking for ways to make the recapitalisation revenue-neutral so that a breach of the ceiling could still be avoided. But the fact that a breach is included in official projections points to a significant loss of credibility for this policy tool.
There are substantial risks to the ceiling from the expenditure side. Public-sector wage negotiations are under way, with a large divergence between trade union demands and MTBPS wage bill projections. The government also noted that capital injections for other state-owned enterprises (SOEs) are likely as profitability has declined sharply and lenders are reluctant to roll over maturing debt, but these are not included in fiscal projections.
The SOEs most likely to require injections, such as Denel, South African Express and the South African Broadcasting Corporation, are relatively small and the fiscal impact would be limited. But the document also points to a risk that Eskom, which holds much larger debt of 9.3% of GDP, may require renewed injections if stabilisation measures do not materialise. Gigaba emphasised that a nuclear power programme is not affordable, but the appointment of a new energy minister last week may signal a desire on the part of the government to accelerate a programme.
Proposals to shore up the public finances are being considered by a team of cabinet ministers, with measures to be announced in next year&#8217;s budget. But the fact that no agreement on consolidation measures or even headline targets for revenue increases were included in the MTBPS highlights how disagreements in the ANC have made it difficult to agree on savings measures.
We think that divisions in the ANC will persist beyond the party&#8217;s electoral conference in December, and it is not clear that the political environment will become more conducive to consolidation. The government also seems increasingly concerned that fiscal tightening measures might dent GDP growth and undermine efforts to rein in deficits.

Fitch_Flickr

Fitch warns that MTBPS suggests policy shifts to occur much faster than expected

By: Monique Vanek
In a press conference with media ahead of the release of the Medium Term Budget Policy framework, South Africa’s Finance Minister Malusi Gigaba said it aimed to be as candid as possible about the dire situation South Africa finds itself in. Below are the highlights.
<div id="attachment_122717" style="width: 693px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-122717" class="wp-image-122717 size-full" src="http://cnbc.africa/wp-content/uploads/2017/05/Gigaba2_Flickr-e1495621373543.jpg" alt="" width="683" height="496" />Photo: Flickr.</div>
Economic outlook is dire
<ul>
<li>2017 Economic growth revised downwards from 1.3% to 0.7%.</li>
<li>Growth expected to reach 1.9% in 2020.</li>
<li>GDP per capita has declined for two consecutive years.</li>
<li>95% of our wealth is in the hands of 10% of the population.</li>
<li>SA has twin challenge of growing economy &amp; ensuring inclusiveness.</li>
<li>SA’s expenditure ceiling could be breached by R3.9bn this year, mainly as a result of government’s recapitalisation of South African Airways and the South African Post Office. Government is considering the disposal of assets to offset this.</li>
<li>In 2016, gross fixed capital investment declined by 3.9%, with large decreases in mining and manufacturing.</li>
<li>Capital investment is expected to decline by 0.6% in the current year.</li>
<li>Government debt held by non-residents has risen from 4.4% of GDP in 2007 to 17.6% of GDP in 2017. A sharply negative shift in global investor sentiment towards South Africa could result in large capital outflows, with highly destabilising consequences for the economy.</li>
<li>Per capita income expected to continue to stagnate in the years ahead</li>
<li>The consolidated budget deficit will widen to 4.3% of GDP in 2017/18, against a 2017 Budget target of 3.1 per cent of GDP.</li>
<li>Gross national debt is projected to reach over 60% of GDP by 2022, with debt service costs reaching 15% of main budget revenue by 2020/21.</li>
<li>Aims to kick-start inclusive growth by implementing the 14 measures announced by Gigaba in June.</li>
<li>A presidential task team is considering a range of steps to bring the public finances back onto a sustainable path.</li>
<li>Growth must be characterised by radical economic transformation.</li>
</ul>
Asset registry to be created
<ul>
<li>Government plans to have a full asset registry available by March 2018 of non- and core assets that it can disposed of to ensure it does not breach its expenditure ceiling</li>
<li>Government is still considering whether to sell its stake in Telkom</li>
</ul>
Tax revenue shortfall 
<ul>
<li>Gross tax revenue for the 2017/18 – 2019/20 period is projected to fall short of the 2017 Budget estimates by R209 billion.</li>
<li>Tax revenue projected to fall short of the 2017 Budget estimate by R50.8 billion in the current year</li>
</ul>
Tax changes
<ul>
<li>Cabinet has approved the release of the carbon tax bill to Parliament</li>
<li>Treasury to relook at medical tax credits</li>
</ul>
Tax revenue and administration
<ul>
<li>Government is noting slippage in tax compliance</li>
<li>SARS working with FIC &amp; SARB to close tax gaps</li>
<li>SARS, FIC &amp; SARB’s ability to combat cyber-crime must be enhanced</li>
<li>Treasury engaging with SARS on Tax Ombud recommendations relating to tax refunds.</li>
</ul>
Spending priorities 
<ul>
<li>The public sector will spend more than R300 billion each year on infrastructure, with about half of this funded directly from the budget.</li>
<li>Lion’s share of economic infrastructure will be provided by State Owned Companies;</li>
<li>Municipalities spending is projected to be R197bn</li>
<li>Provinces are anticipated to spend R208bn over 3yrs</li>
<li>Education sector expected to spend R44bn</li>
<li>Cabinet approved Budget Facility for Infrastructure</li>
<li>Department of Planning, Monitoring &amp; Evaluation has prepared a mandate paper</li>
<li>Government will protect spending on core social programmes that benefit poor</li>
<li>Over next 3yrs consolidated spending will increase by 7.3% to R1.9trn in 2020/21</li>
<li>Community development, learning, culture &amp; health are the fastest-growing functions</li>
<li>No academic deserving student must be excluded due to financial constraints; more in budget 2018</li>
</ul>
 
Stabilising and revitalising state-owned companies
<ul>
<li>The trend of SOCs seeking bailouts to finance operational expenditure, inefficiency and waste must end</li>
<li>Proposals to be made to make Govt guarantee framework more stringent</li>
<li>Retaining a national carrier is in the public interest</li>
<li>A strategic partner is still on the agenda for SAA</li>
<li>Eskom’s governance issues are a major concern</li>
<li>National Treasury to work with DPE to strengthen governance at Eskom</li>
<li>New board for Eskom before the end of November</li>
</ul>
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&nbsp;

SA’s Medium-term budget highlights

By: Aviwe Mtila
Job creation, which has escalated to an alarming all-time high of 27 per cent, and small business development top the list of South Africa’s spending priorities.
<img loading="lazy" decoding="async" class="wp-image-10289 size-full" src="http://cnbc.africa/wp-content/uploads/2017/01/employment.jpg" alt="Job creation is driven by demand" width="1310" height="873" />
This is contained in the Medium Term Budget Policy Statement (MTBPS), delivered by the country’s Finance Minister, Malusi Gigaba, in Cape Town this afternoon.</div>
The MTBPS states that Cabinet approved a Mandate Paper in August to guide the spending choices of national government. It further states that this was done to strengthen alignment of the national budget, the medium-term strategic framework and the National Development Plan (NDP) during the remaining term of the current administration.
The proposed seven expenditure priorities are as follows:
<ul>
<li>Job creation and small business development</li>
<li>Youth development</li>
<li>Infrastructure expansion and maintenance</li>
<li>Land reform, smallholder farmer and agriculture development</li>
<li>Comprehensive social security, education and skills</li>
<li>An integrated plan to fight crime</li>
<li>Advancing the national interest in the Southern African Development Community, throughout Africa, and through participation in the BRICS (Brazil, Russia, India, China and South Africa) bloc and the Indian Ocean Rim Association.</li>
</ul>

SA’s 27% unemployment tops spending priorities-MTBPS

By: Aviwe Mtila
South Africa is unlikely to achieve its National Development Plan goals and some programmes may have to be cut to meet unanticipated spending pressures.
<img loading="lazy" decoding="async" class="aligncenter wp-image-41719 size-full" src="http://cnbc.africa/wp-content/uploads/2017/02/cape_town_-_pixabay.jpg" alt="Britain warns of possible terrorist attacks in South Africa" width="960" height="633" />
This is contained in the Medium Term Budget Policy Statement (MTBPS), delivered by the country’s Finance Minister, Malusi Gigaba, in Cape Town this afternoon.
The National Development Plan (NDP) was developed five years ago and culminated in a long term vision for South Africa, Vision 2030, which spelled out what was required to realize the country’s aspirations.
Among other goals, the NDP set out to grow the economy by 5.4 per cent yearly, and bring unemployment down to 6 per cent by 2030. At present, South Africa’s unemployment rate sits at 27 per cent.
The Finance Minister spearheaded his MTBPS by passionately giving a background on the NDP. Interestingly the actual MTBPS, seen by journalists’ hours before the minister’s speech, raises concerns about the NDP not being achieve because of the country’s current economic trends.
“It was absolutely critical for Vision 2030, which spelled out what was required to realize our aspirations for our society, and for all who live in it. That is what government is about, and that is what development is also about – putting in place the conditions for the people to realize their aspirations for themselves,” says Gigaba.
The MTBPS also notes that there will be no additional funds available to increase baseline expenditure over the 2018 Budge
<img loading="lazy" decoding="async" class="aligncenter wp-image-288430 size-full" src="http://cnbc.africa/wp-content/uploads/2017/10/Aviwe_03.png" alt="" width="948" height="492" />
As the country’s economic outlook takes a turn for the worst, with the GDP contracting by 0.7 in the first quarter of 2017, a stronger economic growth is required to return the public finances to a sustainable position. This will put South Africa back on a path of rising employment and increasing prosperity states the MTBPS.

SA Government could lose sight of Vision 2030

By: Aviwe Mtila
Job creation, which has escalated to an alarming high of 27.7 per cent, and small business development top the list of South Africa’s spending priorities. Over 30 million South Africans live on less than R1 000 per month.
<img loading="lazy" decoding="async" class="aligncenter wp-image-21569 size-full" src="http://cnbc.africa/wp-content/uploads/2017/01/welding__manufacturing.jpg" alt="Manufacturing key to alleviating unemployment" width="525" height="350" />
This is contained in the Medium Term Budget Policy Statement (MTBPS), delivered by the country’s Finance Minister, Malusi Gigaba, in Cape Town this afternoon. 
“Creating jobs and dramatically rolling back the tide of unemployment remains our most urgent priority,” says Gigaba. 
The MTBPS states that Cabinet approved a Mandate Paper in August to guide the spending choices of national government. It further states that this was done to strengthen alignment of the national budget, the medium-term strategic framework and the National Development Plan (NDP) during the remaining term of the current administration. 
The proposed seven expenditure priorities are as follows:
<img loading="lazy" decoding="async" class="aligncenter wp-image-288413 size-full" src="http://cnbc.africa/wp-content/uploads/2017/10/Aviwe_01.png" alt="" width="756" height="669" />
The MTBPS goes on to state that over the next three years, consolidated expenditure will grow by an annual average of 7.3 per cent, from R1.6 trillion in 2017/18 to R1.9 trillion in 2020/21. This is mainly attributed to Community Development, Learning and Culture, and Health. 
The fastest-growing category of expenditure is debt-service costs, which grows by 11 per cent, says the MTBPS.
<img loading="lazy" decoding="async" class="aligncenter wp-image-288415 size-full" src="http://cnbc.africa/wp-content/uploads/2017/10/Aviwe_02.png" alt="" width="540" height="411" />
&nbsp;

More than 30 million S.Ans live on less than R1000-MTBPS

James Turp | ABSA Asset Management
Finance Minister Malusi Gigaba’s Medium Term Budget Policy Statement (MTBPS) on October 25th will come under intense scrutiny as it is the first opportunity for the Minister to demonstrate his performance in the position.
<img loading="lazy" decoding="async" class="aligncenter wp-image-119380 size-full" src="http://cnbc.africa/wp-content/uploads/2017/04/Gigaba_Flickr.jpg" alt="" width="1024" height="720" />
Historically, the MTBPS has been seen as a useful scorecard for progress made on the February budget. It provides detail on government’s spending priorities, sets out fiscal objectives over the medium term (three years) and sketches government’s take on the South African economic context.
Having recently emerged from a technical recession and with real economic growth projected at 0.6% for 2017 following from the mere 0.3% in 2016, the country is growing way below its potential and conspicuously in contrast to global growth trends.
Many observers will be looking out for the degree of its consistency with the February budget, tabled by former Finance Minister Pravin Gordhan, and whether any introduced measures are ratings agency and investor friendly, as well as what progress has been made on inclusive growth deadlines.
As fixed income investors in South African Government debt, we will naturally be observing the important fiscal metrics that indicate the health of the fiscus &#8211; which are expected to have slipped significantly since February; at the worst rate since the 2009 global financial crisis.
In a large part, 2009’s slippage was related to the global situation but 2017 is in contrast as negative global output gaps are generally closing. South Africa is an obvious exception to this trend.
In trying to explain why South Africa is missing out on the global recovery, the South African Reserve Bank, in its October 2017 Monetary Policy Review, attributes this to two main factors: lower commodity prices (largely outside government’s ability to influence) and subdued consumer confidence (a proxy for general confidence and a factor that is influenced by government policies and behaviour).
Their analysis indicates that subdued confidence levels alone removed 115 basis points from GDP growth in 2016 (i.e.0.3% realised instead of 1.45%).
It follows that actions taken to influence confidence are critical to address this low growth paralysis. As a result, the MTBPS becomes a far more interesting and powerful event which could provide a much needed boost to confidence levels, and positively influence investor, business and consumer behaviour via discretionary spending and also labour and capital productivity.
Minister Gigaba should use the opportunity to announce actions that to improve confidence, to address this low growth paralysis and positively influence investor, business and consumer behaviour.
Focus will be on the size of the revenue shortfall, forecast to be anywhere between R25 to R50 billion, having widened due to the lower realised economic growth, apparent revenue collection inefficiencies, lower tax buoyancy and disappointing receipts from the international tax amnesty.
The delicate act of raising revenue against this backdrop of a struggling domestic economy will be difficult. It is thought that an extra R25 billion of revenue could be required.
Higher personal income tax rates or customs duties could undermine economic growth. As a result, it is possible that the lens will turn to medical aid tax credits, VAT zero ratings, petrol and municipal rates.
According to the February Budget, debt/GDP was expected to peak at 52.9% at the end of 2018/19 budget year. This now seems unlikely given the much eroded fiscal space that has various consequences.
The figures show that South African government debt levels are already in line with non-investment grade countries (BB). Although South Africa’s high proportion of domestic currency debt has its benefits, when contingent liabilities and State Owned Entity (SOE) debt are included these levels approach 75% of GDP as seen below (Figure 1).
<div id="attachment_288156" style="width: 552px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-288156" class="wp-image-288156 size-full" src="http://cnbc.africa/wp-content/uploads/2017/10/ABSA-MTBPS_Graph-1.png" alt="" width="542" height="310" />Figure 1: Debt ratios: sovereign credit rating comparison (sources National Treasury and S&amp;P Global ratings).</div>
The funding cost of government debt needs to be lower than nominal GDP growth to assist in reducing the debt burden. The term structure of National Treasury’s issuance is expensive as they attempt to secure long term debt on a steep yield curve.
One could argue that taking bold steps and rolling funding along the shorter area of the yield curve could be more prudent even if less comfortable for the issuer.
Possibly the biggest issue at present is the source of funding for SOEs going forward.
With economic growth negatively impacted, in particular by the severe low levels of confidence, what remedies are immediately available to provide the much needed shot in the arm?
Though implementation of policy is complex, the mere signal of intent would be enough to raise confidence levels quickly. Suggestions of a 1% VAT increase, which could add as much as R20 billion to the revenue, would arguably do more and benefit the economy over the longer term as a consumption tax.
Diversifying trade agreements and strategies away from commodity dependent trading partners where possible could be considered. The elephant in the room, however, remains the severe loss making SOEs which could be aggressively addressed in steps such as the outright liquidation of the national airline or the selective sale of Eskom’s generation and distribution assets &#8211; though it is unlikely that these are available options.
This MTBPS will be closely monitored by ratings agencies, international investors and domestic businesses/entrepreneurs as well as the general public.
Ultimately, the entire country suffers as a result of South Africa’s weak growth trap, and this could be the perfect opportunity to signal a decisive turnaround in strategy.

SA’s 2017 MTBPS: A fixed income perspective

South Africa’s Finance Minister Malusi Gigaba faces a credibility test on Wednesday when he delivers his inaugural budget speech to outline spending plans and economic growth forecasts, which will provide an insight into his fiscal stance.
<div id="attachment_120542" style="width: 770px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-120542" class="wp-image-120542 size-full" src="http://cnbc.africa/wp-content/uploads/2017/04/Gigaba-GovernmentZA.jpg" alt="" width="760" height="522" />Photo: GovernmentZa</div>
Gigaba’s medium-term budget policy statement (MTBPS) will be made amid sluggish economic growth and a politically charged environment following allegations of corruption and influence-peddling in government, which have unnerved investors.
Rating firms are concerned about political jostling ahead of the African National Congress (ANC) conference in December to elect a new party leader to succeed President Jacob Zuma, who has battled several scandals including corruption allegations.
Whoever the ANC picks is likely to take over from Zuma as South Africa’s leader in 2019 when a national election is held.
Gigaba, who has held other key ministerial posts including home affairs and seems to be favoured by Zuma, was appointed to lead the Treasury in March, replacing the fiscally-prudent Pravin Gordhan.
Economists expect him to address concerns over low revenues when he announces spending priorities for the next three years.
A Reuters poll found poor tax receipts could push the 2017/18 budget deficit forecast to 3.9 percent of GDP from an estimate of 3.1 percent in February.
“After the cabinet reshuffle in March, 25 October will be the first major outing for Finance Minister Gigaba and will remove much uncertainty surrounding his fiscal world view,” Nomura analyst Peter Attard Montalto said.
“We do not envisage a blow out in the budget, but credibility will likely be tested if ‘anonymous’ revenue hikes are leaned on too much and growth forecasts are over-egged.”
Following his appointment, Gigaba got a sceptical welcome on financial markets on fears that budget discipline would falter. Rating agencies downgraded South African debt.
BNP Paribas South Africa economist Jeff Schultz said Gigaba “will have his work cut out” to present a credible budget.
“Ratings agencies have already made clear their stance that the future of the investment-grade rating on the country’s local-currency sovereign debt rests on Mr Gigaba’s ability to stick broadly to the status quo set by his predecessor at the time of February’s budget,” Schultz said.
South Africa emerged from a recession in the second quarter but growth remains weak, with the central bank projecting 2017 GDP growth of 0.6 percent.
<h3>CONTINGENT LIABILITIES</h3>
Fitch and S&amp;P Global Ratings rate South African foreign-currency debt in sub-investment, or “junk”, territory. But only Fitch has the country’s local-currency debt in junk.
Moody’s rates both the foreign and local currency debt a notch above speculative grade.
S&amp;P and Moody’s are scheduled to review South Africa in November. Fitch has not published its review calendar for South Africa.
Focus will also be on how Gigaba plans to bolster financial support to struggling state-owned companies such as South African Airways (SAA), which have been highlighted by the rating agencies as one of the problems facing the economy.
Last month the Treasury provided SAA with a second bailout for the year, drawing criticism from the opposition parties.
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Editing by James Macharia and Richard Balmforth
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