A Macroeconomic Perspective on the 2009 National Budget
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A Macroeconomic Perspective on the2009 National Budget Jac Laubscher
Group Economist 16 February 2009
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Overall assessment
● A pragmatic response to a challenging economic environment over which SA has little control
● Taking counter-cyclical fiscal policy to the next level without abandoning fiscal discipline, but the strains are showing
● Balancing immediate needs with strategic thrust
● Confirming the national budget as the outcome of government policy in its entirety
● Reiterating the necessity of effective and efficient policy implementation
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The global recession
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Industrial production and merchandise trade
Source: IMF World Economic Outlook Update January 2009
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SA manufacturing production collapsing
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Global GDP growth
Source: IMF World Economic Outlook Update January 2009
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Economic growth : SA vs. OECD
Source: I-Graph
-1
0
1
2
3
4
5
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
-5
-3
-1
1
3
5
7%
OECD
SA
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Real commodity prices
Source: IMF World Economic Outlook Update January 2009
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Capital flows to emerging markets
Source: Institute for International Finance January 2009
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International capital flow
Source: I-Graph
-29
-24
-19
-14
-9
-4
1
6
11
16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
R'billion
Net foreign portfolio purchases
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Fiscal balances
Source: IMF World Economic Outlook Update January 2009
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Likely fiscal stimulus
% of GDP Expected growth
Brazil 0.2 1.8
Britain 1.1 -2.8
Canada 2.0 -1.2
China 6.0 6.7
France 0.4 -1.9
Germany 2.4 -2.5
India 0.5 5.1
Italy 0.5 -2.1
Japan 2.0 -2.6
Russia 1.1 -0.7
United States 5.8 -0.9
Source: The Economist, 31 January 2009; IMF Revised WEO, 28 January 2009
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The downturn in the domestic economy
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Economic growth: last 6 months on previous 6 months
Source : I-Graph
-4
-2
0
2
4
6
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
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Household consumption expenditure
Source : I-Graph
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
2001 2002 2003 2004 2005 2006 2007 2008
%
-9
-4
1
6
11
%
Car sales (lhs)
Retail sales (rhs)
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Private sector investment spending
Source : I-Graph
-10
-5
0
5
10
15
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
%
-25
-15
-5
5
15
25
35%
Private sector investment spending
Household consumption
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SARB Leading indicator vs. GDP Growth
Source: I-Graph
-15
-10
-5
0
5
10
15
20
25
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
-5
-3
-1
1
3
5
7
9%
GDP Growth
Leading indicator
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Outlook for interest rates
Source: I-Graph
2
4
6
8
10
12
14
16
18
20
22
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
%
Repo rate
CPIX inflation
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Effective exchange rate of the rand
Source: I-Graph
50
75
100
125
150
175
200
225
250
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Index
70
80
90
100
110
120
130Index
Nominal (lhs)
Real (rhs)
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Budget macro-economic projections
2008 2009 2010 2011
Oct 08
Feb 09
Oct 08
Feb 09
Oct 08
Feb 09
Oct 08
Feb 09
GDP (%)
3.7 3.1 3.0 1.2 4.0 3.0 4.3 4.0
CPI (%)
11.6 11.6 6.2 5.8 5.3 5.3 4.7 4.7
C/A (%)
-7.6 -8.1 -7.8 -6.3 -8.9 -6.9 -8.8 -6.9
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Budget macro-economic projections 2
% p.a. 2008 2009 2010 2011
GDP 3.1 1.2 3.0 4.0
HCE 2.5 -0.2 1.9 3.2
GCE 4.5 4.0 4.0 4.0
GFCF 11.5 3.7 5.7 9.0
X 2.1 -1.4 3.3 4.9
M 3.2 -3.7 6.7 7.7
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Revenue projections (R billion)
0100200300400500600700800900
2008/09 2009/10 2010/11 2011/12
2008 MTBPS 2009 Budget
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Do’s of fiscal stimulus
● Increased investment spending
● Targeted transfer payments
● Temporary reduction in consumption tax rates
● Lump sum targeted tax rebates
● Temporary reduction in UIF contributions
Source: “Fiscal Policy for the Crisis”. IMF Staff Position Note. 29 December 2008
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Don'ts of fiscal stimulus
● Large-scale new entitlement programs
● Increase in public sector wage bill
● Increased subsidies to specific industries
● Reduction in corporate tax rates, dividends and capital gains tax
● Amnesties/exemptions for troubled companies
● Tax distortions, e.g. increases in tariffs
● Bolstering financial markets and prices
Source: “Fiscal Policy for the Crisis”. IMF Staff Position Note. 29 December 2008
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National budget balance (% of GDP)
Source: Medium Term Budget Policy Statement 2008
-4
-3
-2
-1
0
1
2
2007/08 2008/09 2009/10 2010/11 2011/12
2008 MTBPS 2009 Budget
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SA fiscal stimulus in perspective% of GDP Expected growth
South Africa 2.6 1.2
Brazil 0.2 1.8
Britain 1.1 -2.8
Canada 2.0 -1.2
China 6.0 6.7
France 0.4 -1.9
Germany 2.4 -2.5
India 0.5 5.1
Italy 0.5 -2.1
Japan 2.0 -2.6
Russia 1.1 -0.7
United States 5.8 -0.9
Source: The Economist, 31 January 2009; IMF Revised WEO, 28 January 2009
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Combined stimulus
● Fiscal policy: 2.6% of GDP
● Monetary policy: repo rate -4,5%?
● Exchange rate: nominal effective -42% from peak; real effective -26% from peak
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Fiscal sustainability
● Primary balance turning negative
● Government savings turning negative
● Government expenditure/GDP ratio increasing
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Primary budget balance (% of GDP)
Source: Medium Term Budget Policy Statement 2008
-2
-1
0
1
2
3
4
5
2007/08 2008/09 2009/10 2010/11 2011/12
2008 MTBPS 2009 Budget
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Net loan debt (% of GDP)
0
10
20
30
40
50
2000/01 2008/09 2009/10 2010/11 2011/12
2008 MTBPS 2009 Budget
Source: Medium Term Budget Policy Statement 2008
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State debt cost (% of GDP)
0
1
2
3
4
5
6
2000/01 2008/09 2009/10 2010/11 2011/12
2008 MTBPS 2009 Budget
Source: Medium Term Budget Policy Statement 2008
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Government bond yield vs. debt/GDP
Source: I-Graph
20
25
30
35
40
45
50
55
1994 1996 1998 2000 2002 2004 2006 2008
% of GDP
5
7
9
11
13
15
17
%
Government Debt/GDP
10 year yield
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Current account vs. government savings
Source: I-Graph
-0.09
-0.07
-0.05
-0.03
-0.01
0.01
0.03
0.05
0.07
1964 1969 1974 1979 1984 1989 1994 1999 2004
% of GDP
Current account
Government savings
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Government expenditure to GDP ratio
0
5
10
15
20
25
30
35
2002/03 2008/09 2009/10 2010/11 2011/12
2008 MTBPS 2009 Budget
Source: Medium Term Budget Policy Statement 2008
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Tax-to GDP ratio (% of GDP)
24
25
26
27
28
29
2000/01 2008/09 2009/10 2010/11 2011/12
2008 MTBPS 2009 Budget
Source: Medium Term Budget Policy Statement 2008
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“Government is not the proximate cause of growth. That role falls to the private sector, to investment and entrepreneurship responding to price signals and market forces. But stable, honest, and effective government is critical in the long run. The remit of the government, for example, includes maintaining price stability and fiscal responsibility, both of which influence the risks and returns faced by private investors.”
“The Growth Report. Strategies for Sustained Growth and Inclusive Development” Commission on Growth and Development. 2008
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