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BUDGET 2004
Portfolio Committee on Finance Parliament 20
February 2004
Noelani King-Conradie NKC Independent Economists
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Introduction

• Well-balanced growth-oriented budget
• But, most unexciting budget in past decade
• Reflect tightness imposed on Treasury
• Minister however managed to maintain established
  integrity
• Volatile currency finally showed its hand
• Hampers economys ability to further economic
  restructuring

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Impact of strong ZAR cleary evident

• Highlights urgency for SARB to step up program of
  reserve building
• ZAR gyrations however eroded benefits of
  expanding SAs export base
• Those who believed strong ZAR positive for
  economy proved wrong

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Strong ZAR erodes economic growth
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Spending on services fastest growingcategory
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Deficit as of GDP to rise in 2004/05
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Fiscal policy and credit ratings

• Fiscal policy can play expansionary role without
  jeopardising macro-economic stability
• Fiscal prudence has been main reason for ratings
  upgrades

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State debt costs set to fall
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Monetary and fiscal policy to work in mutual
support

• Monetary policy not only tool to stimulate
  economic activity
• Establish disciplined and coherent framework for
  fiscal and monetary policy to work in mutual
  support

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Higher domestic investment needed...
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Fiscal slippage a danger over time

• Higher budget deficit still fall within Maastrict
  Treaty benchmark
• Deterioration in fiscal policy, if unmanageable
  could lead to deterioration in investment status
  over time

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Government projections somewhatoptimistic
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but, key to economic prosperity lies in
attracting FDI
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Inflation close or at bottom of cycle
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Four policy priorities

• Raise level of investment from 16 to 25
• Improve quality of education
• Reduce poverty by creating work opportunities
• Continue to build sound institutions

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Conclusion

• Higher budget deficit appropriate
• But, expansionary stance balanced by continued
  fiscal prudence
• Effective service delivery remains key to
  reaching objectives
• Along with balance between social and
  infrastructure spending
• Along with significant FDI the only way to
  achieve policy objectives set out in budget