20180221-法国巴黎银行-South_African_budget__Buying_some_time_12页_744kb

Summary of South African Budget Analysis

Core Content

The 2018 South African national budget marks a return to fiscal consolidation, aiming to bring the primary budget back in balance by FY 2020/21. The budget includes a range of revenue and expenditure measures, with the focus on improving the fiscal position while addressing long-term economic challenges.

Main Budget Summary

Key Revenue and Expenditure Proposals

• VAT Increase: A 1 percentage point increase to 15% is expected to generate an additional ZAR 23bn in revenue annually.
• Tax Adjustments:
  • Excise duties on luxury goods are raised.
  • Estate duties for estates over ZAR 30m increased by 5pp to 25%.
  • "Sin" taxes will see an average increase of 6% to 10%.
  • Fuel levy increased by ZAR 0.52 per litre.
  • Medical tax credits will be increased below inflation over three years to fund national health insurance.
• Expenditure Cuts:
  • Focus on reprioritising expenditure and reducing conditional capex transfers.
  • Reductions in spending on goods and services, and administrative costs in key sectors.
  • Conditional infrastructure grants to provinces and local governments reduced.
• Wage Bill: Public-sector wage bill remains a significant portion of non-interest spending (around 40%), with an expected average annual increase of 7.3%.

Fiscal and Debt Outlook

• Primary Budget Balance: Expected to improve from -4.6% of GDP in FY 2017/18 to -3.7% in FY 2020/21, with the Treasury on track to achieve a primary budget in balance by FY 2020/21.
• Debt-to-GDP Ratio: Projected to peak at 56% in FY 2020/21, down from 60% previously. This is below the threshold of concern for ratings agencies.
• Bond Issuance: Expected to remain elevated over the medium term, though lower than the October MTBPS forecast. The government plans to issue around USD 2–3bn annually in international markets.

Economic Assumptions

• GDP Growth: Expected to average 1.5% in 2018, rising to 2.1% by 2020.
• Inflation: CPI inflation is projected to be around 5.3% in 2018, with the VAT increase likely to push core inflation 0.5–0.6pp higher, but the SARB is expected to treat it as a temporary shock.
• Current Account: Expected to remain negative, with a narrowing trend over the next few years.

Risks and Concerns

• State-Owned Enterprises (SOEs): SOEs continue to be a major risk to state finances, with significant contingent liability exposure.
• Eskom: The largest SOE, with ZAR 350bn in state guarantees, remains a critical risk. It is expected to draw down further on this facility at nearly ZAR 18bn per year.
• Public Sector Wage Bill: Despite efforts to reprioritise spending, the wage bill is not adequately addressed, posing a long-term fiscal risk.
• Ratings Outlook: The budget is expected to buy Moody's investment-grade ratings for at least six more months, but a negative outlook is likely to persist.

Other Key Points

• Prudential Limits: Increased for the first time since 2010, highlighting the government's focus on attracting investment.
• Sovereign Ratings: Moody's is likely to remove the downgrade review, but the sovereign will remain on a negative outlook until its next review in October 2020.
• Legal Notice: This document is non-independent research and not intended for general use, with specific restrictions on its use by non-Relevant Persons.

Conclusion

The 2018 budget reflects a strategic shift towards fiscal consolidation, with revenue enhancements and expenditure cuts aimed at improving the fiscal balance. While the budget has taken steps to address long-term fiscal risks, challenges such as the public-sector wage bill, SOE inefficiencies, and the impact of the VAT increase on inflation remain significant. The success of the budget will depend heavily on President Cyril Ramaphosa's actions and the broader economic environment.