德银-南非-宏观经济-南非：2018年预算分析——改变正在进行中-20180221-23页_1mb

South Africa: 2018 Budget Analysis Summary

Core Content

The 2018 South African budget was presented as a much improved and credible fiscal plan, reflecting a faster consolidation path compared to the previous Medium Term Budgetary Policy Statement (MTBPS). The fiscal deficit is projected to reduce from -3.9% of GDP in the October 2017 forecast to -3.6% in FY18/19 and FY19/20, and further to -3.5% in FY20/21. The government debt ratio is expected to stabilize at around 56% of GDP in FY20/21, which is lower than the previously forecasted 60%.

Main Viewpoints

• Fiscal Adjustments: The budget relies on a combination of expenditure cuts (R85bn over the medium term) and new tax proposals, including a 1% increase in VAT (R22bn in revenue) and a significant reduction in social transfers.
• Social Budget Protection: Despite the VAT increase, social budgets have been adequately protected, which should help mitigate political risks.
• Fee-Free Tertiary Education: A R35bn allocation was made to support fee-free tertiary education, which is expected to reduce the political backlash against the VAT increase.
• Market and Political Sentiment: The budget has been well-received, with a positive impact on business and consumer sentiment. The political shift is seen as beneficial, although there are some risks for the retail and vehicle sectors due to the VAT increase.

Key Information

Fiscal Consolidation

• VAT Increase: 1% increase to 15%, generating R22bn in revenue.
• Expenditure Cuts: R85bn over the medium term, with a reduction in the expenditure ceiling.
• Primary Budget Balance: Expected to improve to a surplus in FY20/21, up from -0.7% of GDP previously.
• Borrowing Requirement: Reduced by approximately 1% of GDP over the medium term, easing the government's reliance on debt.

Macroeconomic Assumptions

• Growth Projections: Revised to 1.5%, 1.8%, and 2.1% for 2018, 2019, and 2020 respectively.
• Inflation Forecasts: CPI is projected to be 5.3%, 5.4%, and 5.5% for 2018, 2019, and 2020, respectively. The VAT increase is expected to have a moderate impact on inflation, with room for 25-50bps interest rate cuts.
• Exchange Rate: The rand is expected to trade between R11 and R12 against the dollar, supported by improved macroeconomic conditions and a stronger outlook for the currency.

Debt Sustainability

• Debt Ratio: Revised lower to 55.1%, 55.3%, and 56% of GDP for FY18/19, FY19/20, and FY20/21 respectively.
• Credit Rating Outlook: The budget is expected to maintain the current credit rating (Moody's Baa3, negative outlook; S&P BB, stable outlook; Fitch BB+, stable outlook).
• SOE Reforms: Significant focus on improving governance and financial positions at state-owned enterprises (SOEs), particularly Eskom, which is exploring private sector partnerships.

Market Impact

Bond Market

• Issuance Reduction: Gross bond issuances are expected to decrease by R40bn annually.
• Maturity Profile: New bond issuances are likely to be inflation-linked, with a preference for 2039 maturity.
• Rand Rally: The rand may still rally due to emerging market currency overshots, potentially reaching R11/$.
• Bonds Performance: The benchmark R186 may trade between 7.5% and 7.8% in the short term, with a steepener idea of -90 to -60.

Equity Market

• Consumer Sentiment: Positive despite the VAT increase, as social transfers have been increased by R40bn.
• Sector Impact: The budget is largely neutral for telecoms and mining, with focus on structural reforms. It supports a constructive view on banks and the affluent insurance sector.

Structural Focus Points

• Governance Improvements: Enhanced oversight and operational reforms at SOEs.
• Eskom Reforms: Partnership with the private sector, task team to address municipal debt, and potential for capital structure strengthening.
• Regulatory Changes: Introduction of a simplified licence regime for new financial institutions, and potential for non-bank entities (like Google and Apple) to enter the payment system.
• New Entrants: Three new banking licenses have been granted, including TymeDigital, Discovery Bank, and Bank Zero.

Revenue and Expenditure Breakdown

• Revenue: Tax revenue increased by R36bn in FY18/19, with a focus on VAT, excise duties, and estate duties.
• Expenditure: Non-interest expenditure is expected to grow at 7.3% over the medium term, with significant increases in social transfers and higher education.

Budget Impact on Sectors

• Banks: Positive outlook due to asset growth and SOE reforms. The Reserve Bank is working on modernizing payment systems and may allow new players to participate.
• Insurance Sector: Affluent insurance segment is expected to rebound due to lower tax rates for higher income groups.
• Financial Services: Umbrella funds and pension fund reforms are expected to benefit large players like Alexander Forbes.

Summary

The 2018 budget demonstrates a more disciplined fiscal approach, with a focus on reducing the deficit and stabilizing the debt ratio. It includes a 1% VAT increase to generate revenue, but this is offset by increased social transfers and fee-free tertiary education. The budget is seen as market-friendly, with positive implications for credit ratings and currency performance. Regulatory changes and SOE reforms are expected to support the financial sector, particularly banks and insurance companies, while the focus on improving governance and financial positions should enhance investor confidence.