Weekly Economic Focus: Medium Term Budget Policy Statement Disappoints.

By Alexander Forbes Investments on Oct 31, 2018 in Market and Economic Commentary

Medium Term Budget Policy Statement = MTBPS               

Medium Term Expenditure Framework = MTEF

Although the MTBPS was disappointing, it was realistic and showed government’s commitment to stay on course for fiscal prudence to ensure fiscal sustainability. The focus on structural reforms and infrastructure investment will lift long-term growth potential. However, there are significant downside risks to the growth outlook and therefore fiscal trajectory, most of which are external global risks. Below are the main points from the MTBPS.

Economic Growth

Compared to Budget 2018, 0.7% lower, downwardly revised from 1.5%

Growth forecast for FY2019/2020-FY2021/2022 largely unchanged at 2.3%

Tax Revenue

Under-collection of R27.4bn expected in FY2018/2019, due to

  • Underestimation of tax refunds R20bn
  • Lower corporate income tax R5.9bn

Over MTEF, tax revenue R85bn lower than budgeted

Main tax revenue sources – no adjustments

Main Budget Deficit

Revised up from 3.8% for FY2018/2019 to 4.3% of GDP

Rising to 4.4% in FY2019/2020, before gradually declining to 4.2% in FY2021/2022.

Gross Government Debt

Increases by R862bn over MTEF

Debt-to-GDP ratio 58.5% in FY2021/2022

Stabilising at 60% of GDP in FY2023/2024.

Net debt forecast to stabilise in 7 years at 56.5%.

Growth-boosting reforms pivot on the investment drive, which shows signs of success with R290bn in investment commitments, largely from the domestic private sector.

Moody’s – There is an increase in likelihood of a change in outlook from stable to negative over the next 12 months if reforms currently being implemented fail to boost economic growth.

Global economic downturn – Potential for a global economic downturn in late 2019 to 2020 present significant downside risks to domestic economic growth and fiscal sustainability.

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Alexander Forbes Investments

Alexander Forbes Investments

Alexander Forbes Investments was established in 1997. We are a forward-thinking and trusted global investment provider, with roots in Africa. In pursuit of certainty we set out to understand our retail and institutional clients’ circumstances and risk tolerance to set clear goals. Our adaptive investment approach, called Living*Investing allows us to maximise opportunity and minimise risk at every stage of the investment cycle.

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