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South Africa stands at the crossroads of major economic
possibilities, but decisive action will be needed to prevent it
heading in a direction where the negatives will overwhelm the
This is according to the 2003 Medium Term Budget Policy Statement
(MTBPS), unveiled by Finance Minister Trevor Manuel in Parliament
The document warns that failure to address the issue of economic
inclusion and exclusion could "precipitate a vicious cycle of
decline in all spheres".
Citing the conclusions of a preliminary report, "Towards a Ten Year
Review", which aims to identify government's progress towards
meeting its objectives, it says both focus and decisiveness will be
required to avoid such a cycle.
"Required are both focus and decisiveness on the part of
government, the will to weigh trade-offs and make choices, as well
as strategies to inspire all of society along a new trail.
"If decisive action is taken on a number of focused areas, the
confluence of possibilities is such that the country could enter a
road of faster economic growth and job creation".
Such decisive action would also result in faster and more efficient
provision of services, and a "reduction of the paradigm of
exclusion prevalent among sections of the society".
The MTBPS also highlights major demographic and social challenges
facing the country. These include: - Rising unemployment: Since the
mid-1990s, the economically active population has grown faster than
job creation, causing the unemployment rate to hit 29,5% by
The document says employment creation is a critical
It warns that both investment and output growth "still lag behind
the rates required to reduce unemployment and achieve greater
equity in the distribution of incomes".
-Migration to urban areas: This has gathered momentum, resulting in
a "significant shift" of population between provinces.
-Figures show that between 1996 and 2001, almost 600 000 migrants
streamed into Gauteng and the Western Cape from South Africa's
seven other provinces.
- Living conditions: Although steady progress has been made over
the past decade, "many communities remain marginalised from the
mainstream of economic opportunity, and lack commercial, cultural
or recreational cohesion".
- Education: The MTBPS says progress here has been slow "in
advancing the quality of educational attainment and the range of
further education opportunities".
- Health care: Although a network of facilities has been created,
health system management remains uneven.
- Social grants: The number of social grant recipients has risen to
just under seven million over the past five years.
However, "significant numbers of poor households remain vulnerable
to income or food security, particularly where drought conditions
affect rural livelihoods, or crime and unemployment impact on
- Aids: An estimated overall rate of HIV infection of 11,7%, and a
rising death toll from Aids, sees health and welfare services
facing "difficult and fast-changing demands and institutional
- Crime and justice: Despite progress, and stabilisation in the
incidence of some serious crimes, "levels remain unacceptably high,
and the efficiency of the justice system has to be improved".
- The MTBPS says addressing these challenges "is the point of
departure of government's policy framework for the 2004 Budget, and
for the years ahead".
- "South Africa is at the confluence of major possibilities arising
out of progress that has been made (over the past decade)," it
Trevor Manuel has scaled back the February 2003 Budget economic
growth forecast of 3,3% to 2,2% for the year, but says growth will
rise to 4% in 2006, as the world economy improves.
In his Medium Term Budget Policy Statement (MTBPS), he says
inflation – 5,4% in September - is expected to remain within
the target range of three to six percent over the next three
The MTBPS, tabled in Parliament yesterday, states that while risks
remain - particularly in respect of food price inflation, oil
prices and the exchange rate -- CPIX inflation is expected to
average 4,9%, 5,4%, and 5,1% in 2004, 2005 and 2006
The strengthening of the rand has contributed significantly towards
lowering both producer and consumer prices, especially for imported
and tradable commodities.
Given the economic slowdown, the revised revenue estimate for
2003/04 is R4,6-billion lower than the 2003 Budget
Interest expenditure is likely to be R3,8-billion less than
budgeted, and non-interest expenditure has been adjusted upwards by
Thus, the resulting budget deficit is slightly higher than
The medium term expenditure framework (MTEF) provides for spending
to increase in real terms by an average of 4,4% over the next three
This growth in non-interest spending is supported by the savings on
debt service costs.
The current MTEF provides for an additional R37-billion over the
2003 budget estimates.
This is broken down into R8-billion in 2004/05, R12-billion in
2005/06, and R17-billion in 2006/07.
According to the MTBPS, these allocations will continue to be used
to address social and economic needs, particularly through social
grant transfers, infrastructure development, and human capital
In line with previous years, a contingency reserve has been set
aside for all three years in the MTEF.
A budget deficit of 2,6% of gross domestic product (GDP) is
anticipated for this year, rising to 3,2% next year, before
declining to 2,8% by 2006/07.
These main budget deficits will be offset by significant surpluses
in the social security funds, thereby reducing the consolidated
national government deficit to 2,9% in 2004/05, declining to 2,6%
Savings on interest payments mean that debt service costs will
continue to moderate over the 2004 MTEF period, reaching 3,7% of
GDP in 2006/07 from 4,2% in 2002/03.
The overall public sector borrowing requirement is expected to
average about 3,5% of GDP over the next three years, and should not
put undue pressure on domestic capital markets.
GDE will be driven by steady growth in consumption expenditure,
investment spending, and government's "expansionary fiscal
The foreign exchange reserve position continued to strengthen this
year, and as at the end of September, gross gold and other foreign
reserves stood at $20,2-billion - up from $14,9-billion at the end
The South African Reserve Bank's oversold net open forward position
(NOFP), which was $1,5-billion in January, was completely
eliminated in May this year.
Since then, the continued reduction in forward foreign exchange
contracts has contributed to a strengthening of the NOFP to a
positive $1,8-billion at the end of September this year.
The last three years has seen South Africa's Gross Domestic Product
become "more resilient" and less likely to be affected by the world
market in relation to the G7 group of industrialized
The document says that after a protracted downturn in the world
economy, the global recovery is beginning to gather momentum,
particularly in the US, Japan and emerging Asia.
"World GDP growth is forecast to hold above two per cent in 2003
and to accelerate to around 3 percent in 2004".
The MTBPS says the US will remain the primary driver of world
growth over the medium term, supporting recovery in Europe and
Further, the European economy will continue to be adversely
affected by the global slowdown, the effects of which have been
exacerbated by the strengthening of the Euro.
Growth in Europe remains hampered by both long-term structural
constraints and short-term restrictions on monetary and fiscal
China continues to grow strongly, supported by growing domestic
markets and the "extremely" competitive real level of the
Sustained growth in China has supported commodity prices, despite
faltering G7 performance.
Expectations are that recovery in the G7 will further contribute to
strengthening commodity prices. – Sapa.