1. Budget Policy Statement Macro-economic Policy
Prospects for the World & SA economies
2003 Medium Term
Budget Policy Statement
Macro-economic Policy
Ben Smit (BER)
17 November 2003

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

3. Prospects for the World & SA economies
Macro-economic
Forecasts

4. Recent SA economic developments – Remarkable macro stability

5. SA economy: GDP growth

6. SA economy: BoP as % of GDP

7. SA economy: Inflation (CPIX)
6% upper target

8. Longest business cycle upswing since WW II

9. Recent SA economic developments – Remarkable macro stability
Strong and volatile exchange rate

10. Emerging & other currencies vs USA $

11. SA economy: R/$ vs PPP

12. Real trade-weighted rand back to levels of early 1998

13. Recent SA economic developments – Remarkable macro stability
Strong and volatile exchange rate
Limited slowdown in 2003

14. RMB/BER Business Confidence Index

15. Investec Purchasing Managers Index
Oct
2003

16. 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
3.0
3.5
Inflation (CPIX)
6.9
4.9
5.4
5.1
6.8
5.2
5.7
4.8
BoP: Current account (%)
-0.8
-1.4
-1.7
-2.0
-1.3
-1.5
-1.9
-1.1
-1.0
-1.2

17. Previous Treasury forecast
2000
2001
2002
2003
GDP growth (%)
- National Treasury
3.5
3.4
2.8
- BER
3.3
2.6
3.0
- Actual ?

18. Prospects for the World & SA economies
Macro-economic
Policy Aspects

19. Macro-economic policy: General 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

20. Fiscal variables: consumer expenditure (%)

21. Fiscal variable: fixed investment (%)

22. Taxes: total tax burden

23. Taxes: Direct as % of total

24. Taxes: Personal Tax Rate

25. Government savings (%)

26. Deficit before borrowing

27. Fiscal variables: government debt (%)

28. 2003 MTBPS projections 2002 2003 2004 2005 2006 Total revenue (%) 24.8
Total expenditure (%)
26.0
27.5
28.0
27.7
- Debt service cost (%)
4.2
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
2.8
Financing:
- Domestic (ST) (Rbn)
6000
8000
- Domestic (LT) (Rbn)
24772
31358
28196
28931
- Foreign loans (Rbn)
1848
6696
12068
4302

29. 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
8.0
12.0
17.0

30. Target as continuous 3 – 6% target from annual average
Inflation targeting
Target as continuous 3 – 6% target from annual average
Target 3 – 6% for 2006 and beyond
Escape clause as “explanation clause”
Transparency

31. Structural/Developmental issues
“…strategy for reinforcing investment and broadening participation in the SA economy”
Exchange public infrastructure capacity
Expanded public works programme
SMME’s
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

32. Economic Information that works for You www.ber.sun.ac.za
BUREAU FOR ECONOMIC RESEARCH
Economic Information
that works for
You