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Outline Purpose Economic performance Impact of slower growth Consolidated fiscal framework Non-interest expenditure Interest expenditure SA’s credit rating Priority programmes Priority spending sectors Implications Purpose To provide members: with an assessment of the current economic situation underlying the fiscal framework the impact on the estimated growth in revenue, expenditure, the budget deficit and government borrowing with a review on outcomes of expenditure to consider for possible reprioritisation, strengthening or efficiency gains within sectors To assist members with making recommendations for possible adjustments to the current appropriations. Economic Performance GDP growth in 2013: 1.8 per cent GDP estimated growth for 2014: 2.7 per cent 1st quarter of 2014: contraction of 0.61 per cent since the 3.8 per cent growth in the last quarter of 2013 Revised estimates from different institutions for 2014: between 1.9 and 2.3 per cent There is therefore a possibility that government would also revise the growth forecast over the next medium term. Impact of slower growth Revenue estimates performance: are based on economic Slower growth will translate into lower revenue collection rates. If expenditure levels remain the same, the budget deficit will increase. Higher deficit translates to higher borrowing requirements and interest expenditure. Consolidated fiscal framework, 2010/11 – 2016/17 2010/11 R billion/percentage of GDP Revenue % of GDP Non-interest expenditure % of GDP Interest payments % of GDP Expenditure % of GDP Budget balance % of GDP 2011/12 2012/13 Outcom e 2013/14 Estim ate 2014/15 2015/16 2016/17 Average annual grow th over MTEF Medium -term estim ates 762.9 27.8% 842.3 28.3% 909.3 28.4% 1 010.5 29.2% 1 099.3 29.0% 1 201.3 28.9% 1 324.7 29.1% 9.4% 804.7 29.6% 871.4 29.4% 951.7 29.9% 1 041.6 30.3% 1 131.1 30.0% 1 218.1 29.5% 1 306.5 28.8% 7.8% 75.3 2.7% 81.7 2.7% 93.5 2.9% 107.7 3.1% 121.2 3.2% 133.5 3.2% 145.1 3.2% 10.5% 880.0 32.0% 953.1 32.0% 1 045.2 32.7% 1 149.3 33.2% 1 252.3 33.1% 1 351.6 32.6% 1 451.7 31.9% 8.1% -117.1 -4.3% -110.8 -3.7% -135.9 -4.3% -138.8 -4.0% -153.1 -4.0% -150.3 -3.6% -126.9 -2.8% -2.9% Non interest expenditure Interest expenditure The level of interest payments is determined by total outstanding government debt and the cost of debt. The estimates of interest expenditure are susceptible to two distinct risks: Total government debt could grow beyond the estimated level. The downgrade of SA’s sovereign debt by credit rating agencies translate into higher interest costs on foreign borrowing and government’s ability to borrow. SA’s credit rating In June 2014, 2 credit rating agencies downgraded South Africa’s sovereign credit rating. South Africa’s credit rating would be subjected to a further downgrade if the economic position deteriorates. A further downgrade would raise foreign debt service costs. Government would have limited space to raise more debt to fund future budget deficits. This would necessitate expenditure cuts on programmes. Such cuts would slow down the implementation of the National Development Plan. Priority programmes To ensure performance on the outcomes of the NDP the national budget is allocated towards programmes clustered together within functional groups. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Quality basic education A long and healthy life for all South Africans All people in South Africa are and feel safe Decent employment through inclusive growth Skilled and capable workforce to support an inclusive growth path An efficient, competitive and responsive economic infrastructure network Comprehensive rural development Sustainable human settlements and improved quality of household life Responsive, accountable, effective and efficient developmental local government system Protect and enhance our environmental assets and natural resources Creating a better South Africa and contributing to a better and safer Africa in a better world An efficient, effective and development oriented public service An inclusive and responsive social protection system Transforming society and uniting the country Implications Slower growth Less revenue Higher budget deficit Higher cost to borrow Less funds for spending on programmes Outcomes of NDP compromised How do we respond? Root causes of the constraints to economic growth Reprioritisation Efficiency gains Monitor Thank you