FY11/12 on track: Our tracking estimate for FY11/12 revenues and expenditure suggests that there will be few changes to this year’s fiscal figures. Revenues are running ahead of target while expenditures are running only slightly behind. This, we believe, will result in Treasury announcing a slightly narrower main budget deficit of 5.6% of GDP (from 5.7% in October 2011). –> Macro downgrades are the key for outer years: Further out, the news is less encouraging. A gloomy global macro backdrop leaves us expecting Treasury to revise down its FY12/13 and FY13/14 nominal GDP growth forecast by a 0.2pp and 0.1pp, respectively. The negative impact on revenue collection, together with the counter-cyclical stance to maintain spending, means we would then also expect wider projected fiscal deficits for these same years. Widening budget deficits in outer years: For FY12/13 and FY13/14, we look for Treasury to announce a respective 0.1pp and 0.2pp widening in the budget deficit as a percentage of GDP, to 5.6% and 5.0% each year. Cumulatively, this would increase Treasury’s three-year budget deficit by R16bn, rising to a total R542bn by the end of FY13/14. Issuance implication: We expect the bond curve to steepen on the budget release, as disappointment on the pace of deficit reduction, heightened focus/concern on the financing of SOE infrastructure projects, and the potential for extra long-end issuance from a new switching programme by the Treasury all weigh on sentiment.
Ratings implication: We do not expect the rating agencies to downgrade –>South Africa as a direct result of the February budget. The agencies’ attention on South Africa is likely to heighten further post-budget, however, and failure of the ANC to agree some economic reforms at the policy and elective conferences this year could trigger a downgrade. Broader policy issues to watch: While the MTBPS is typically the stage for new policy initiatives, we are expecting updates on particular policies and projects. We expect the Finance Minister to bring us up to date on the three-year R9bn job fund announced in the MTBPS. We also hope for some clarification on the seemingly contentious youth wage subsidy initiative. All eyes will be focused on details surrounding the NHI, but here we only expect a further update on the planned pilot projects. For industrial policy, the announcement that Special Economic Zones (SEZ) will replace Industrial Development Zones (IDZ) may provide some encouragement to investment prospects. And finally, the only meaningful announcement expected on taxation will be the details around the new dividends tax which will formally replace Secondary Tax on Companies (STC) from 1 April 2012. –>
– By Barclays Capital Research
