Republic Of South Africa 18-K Annual report (foreign governments)

Exhibit 99.D

Medium Term Budget Policy Statement 2016 National Treasury Republic of South Africa 26 October 2016

ISBN: 978-0-621-44971-6 RP: 342/2016 The Medium Term Budget Policy Statement is compiled using the latest available information from departmental and other sources. Some of this information is unaudited or subject to revision. To obtain additional copies of this document, please contact: Communications Directorate National Treasury Private Bag X115 Pretoria 0001 South Africa Tel: +27 12 315 5944 Fax: +27 12 406 9055 The document is also available on the internet at: www.treasury.gov.za. ii

Foreword Worldeconomicasndpoliticasriensatatoefflux, growthandinvestmenti,ntandemwithwa idening havberoughgtlobailnequalityintosharpefrocus. TheNationaDl evelopmenPt lan(NDP)o, uroad inequality,targetsgrowthof5.p4ecrent.The2012 markedbyhighlevelosufncertaintyA. naemic trusdteficibtetweenordinarypeoplaendelites, maptoridSouthAfricaofpovertyandfight MediumTermBudgetPolicyStatement (MTBPSf)orecastthawt ewouldbegrowinga3t .p5ecrenbt y2016B. urteaGl DPgrowthhas slowedmarkedlya,ntdheconomyinsowexpectedto Thiisms uchtooslowfourtsoradicallyremake andignityfoarll. Inresponsteothneewglobarlealityandthneeed havebeenadjustingfiscapl olicytoachievestab fiscusa, longsid economicreformsandtransparent growthratenseededtoachievtehNe DP’gsoals. asgrossdebat nddebt-servicecostshavegrown. recordgrowthojfus0t.p5ecrentthiysear. SouthAfriciantosaocietybasedonsociajlustice toscaluepthpeacoesfociatlransformationw, e ilityandsustainabilityA.stableandsustainable monetarypolicyw, ilslupporarteturntothe Ouerfforthsavnearrowedthbeudgedteficite,ven Howeverl,owlevelsoef conomicgrowthwill requiraedditionarlevenuemeasureasndfurthesrpendingcutosvetrhme ediumtermT. hesaections shouldseneentationadlebsttabilisae4t7.9pecrenotGf DPin2019/20. Economicgrowthisforecastoincreasemoderate significandtomestircisktsotheoutlookN. ewspe liquidityrisksast omestate-ownedcompaniespersistW. inclusivej,ob-creatingrowthA. lolufnseedto lyoverthenexthreeyears,buthereare ndingpressureaslsocontinuetomaterialisea,nd hawt eneedmosrtighnt owisfaster, acwt ithgreateurrgencyandsingularityopfurpose toremovoebstacletsogrowthintheconom Governmenct ontinuestostrengthenitsactive investmengtrowtha,ndiws orkingtoprovidger Ouerffortws ilclontinuetobemultifacetedp: r consumecronfidencea,ndspurrinignvestment. yandinefficiencieisnpubliscpending. collaborationwithbusinessandlabourtorevive eateprolicycertaintyandimprovleabourrelations. omotinginclusivegrowthc,ultivatingbusinesasnd Inthme eantimea,tshesreeforms ustehleimitedresourcews heavea,ndhowthosre maktehemselvefseltw, feacdei fficulcthoiceasbouhtowbestto esourcews ilblsehareditnaimoegfreanteed. fundms usbtsepenftotrhceommongood. nvestmenitnoufruturaendprotectthperogress rightsofallwholiveinSouthAfricaT. he servicesandeconomicinfrastructure,and gheerducationstudentisnfinancianleed. theoutcomesofextensivedeliberationsand inputsfromthePresidenat ndmycolleaguesin sterMcebisJi onasD, irector-GeneraLl ungisa eihrardworkandiligencienthpereparationof Oucronstitutionaml andatieusnequivocalp:ublic Tothaetndg,overnmenptroposetsoenhanctehie wehavemadetowardsrealisingthefundamental proposalsincludesustainingspendingonsocial reallocatingfundtsoreducheardshipfsacedbyhi Theseandtheotherproposalsthatfollowreflect suggestionsfromacrossgovernmenta, swelal s CabinetIa. mimmenselygratefutloDeputyMini FuzilaendthsetafaftthNe ationaTl reasuryfotrh thipsolicystatement. PravinJGordhan MinisteorFf inance iii

Contents Introduction ....................................................................................................... Building a coalition for faster growth ................................................................. A measured fiscal consolidation ....................................................................... Funding post-school education and training ..................................................... Institutions and inclusive transformation ........................................................... Conclusion ........................................................................................................ Chapter 1 Act together for a better future ...................................................................... 1 1 2 4 6 8 8 Chapter 2 Economic outlook........................................................................................... Economic growth and transformation ............................................................... Global outlook................................................................................................... Domestic outlook and developments ................................................................ Reforms advancing economic transformation................................................... Conclusion ........................................................................................................ 9 9 10 12 17 22 Chapter 3 Fiscal policy .................................................................................................... Creating conditions for faster growth ................................................................ Stabilising debt and encouraging investment.................................................... Medium-term considerations............................................................................. The fiscal framework......................................................................................... National debt outlook ........................................................................................ Managing risks to the fiscal strategy ................................................................. Conclusion ........................................................................................................ 23 23 24 26 29 30 30 32 Chapter 4 Expenditure priorities and division of revenue ............................................ Budget priorities and fiscal restraint .................................................................. Improving the quality of spending ..................................................................... Medium-term spending proposals..................................................................... Division of revenue ........................................................................................... Conclusion ........................................................................................................ 33 33 35 37 45 46 Annexures Fiscal risk statement ...................................................................................... Introduction ....................................................................................................... Institutional strengths and fiscal risk ................................................................. Macroeconomic risks ........................................................................................ Policy and budget execution risks..................................................................... Contingent and accrued liability risks................................................................ Long-term fiscal risks ........................................................................................ Conclusion ........................................................................................................ 49 49 50 51 54 55 56 57 Technical annexure ........................................................................................ Introduction ....................................................................................................... Assumptions for the macroeconomic forecast .................................................. The fiscal framework......................................................................................... Financing the borrowing requirement and national debt outlook ...................... 2015/16 outcomes and 2016/17 mid-year estimates ........................................ Adjusted Estimates of National Expenditure ..................................................... Division of revenue ........................................................................................... 59 59 59 60 65 67 68 69 Glossary .......................................................................................................... 75 iv

Tables Figures 1.1 1.2 1.3 1.4 Trend economic growth ....................................... Main budget spending per capita in 2015 prices . Index of budget allocations in real terms ............. Post-school education and training budget as a share of GDP ....................................................... 2 4 7 1.1 1.2 1.3 Macroeconomic projections .............................. Consolidated government fiscal framework ...... Consolidated government expenditure ............. 3 5 6 7 2.1 Annual percentage change in GDP and consumer price inflation, selected regions/countries ......... Macroeconomic projections .............................. Distribution of South African exports by country/region ................................................... 11 14 2.1 2.2 2.3 2.4 GDP growth and business confidence................. Growth in sub-Saharan Africa.............................. Contribution to economic growth by sector.......... Import-price inflation and nominal exchange rate depreciation.......................................................... 10 12 13 2.2 2.3 15 17 3.1 3.2 3.3 3.4 Announced consolidation measures ................. Consolidated current and capital balances....... Real GDP growth projections............................ Consolidated fiscal framework .......................... 25 26 27 29 3.1 Gross debt of South African government, households and non-financial corporations ......... Main budget primary balance............................... National and provincial headcount....................... Real growth of main budget non-interest spending............................................................... National gross and net debt outlook .................... 24 26 28 3.2 3.3 3.4 4.1 4.2 4.3 Baseline reductions to support new priorities ... Consolidated expenditure by function............... Consolidated expenditure by economic classification ...................................................... Additions to support universities and students . Division of revenue............................................ 35 38 28 30 3.5 39 40 45 4.4 4.5 4.1 Real spending growth in selected goods and services ................................................................ Nominal growth in expenditure ............................ 36 37 4.2 T.1 Assumptions underpinning the macroeconomic forecast ............................................................. Total tax and consolidated budget revenue...... Financial transactions receipts and payments.. Tax revenue outcomes, projections and assumptions ...................................................... Main budget expenditure ceiling ....................... Consolidated fiscal framework .......................... Selected items of goods and services and capital spending: national and provincial government ....................................................... Financing of national government borrowing requirement ....................................................... Total national government debt ........................ 59 60 61 A.1 A.2 A.3 A.4 A.5 Government’s fiscal risk framework ..................... Downward revisions to growth forecast ............... Gross tax buoyancy ............................................. Growth scenarios and results .............................. Maturity profile of government debt, 30 September 2016.............................................. 49 51 51 53 T.2 T.3 T.4 62 63 64 T.5 T.6 T.7 54 65 T.8 66 67 T.9 T.10 Performance against strategic portfolio risk benchmarks....................................................... T.11 National and provincial expenditure: 2015/16 outcomes and 2016/17 mid-year estimates ...... T.12 Main budget framework .................................... T.13 Changes to division of revenue......................... T.14 Provincial equitable share ................................. T.15 Expenditure by vote .......................................... T.16 Expenditure by province ................................... 67 68 70 70 72 73 74 v

What is the Medium Term Budget Policy Statement? The Medium Term Budget Policy Statement (MTBPS) is a government policy document that communicates to Parliament and the country the economic context in which the forthcoming budget will be presented, along with fiscal policy objectives and spending priorities over the three-year expenditure period. The policy statement is an important part of South Africa’s open and accountable budget process. It empowers Parliament to discuss and shape government’s approach to the budget. The Money Bills Amendment Procedure and Related Matters Act (2009) requires government to table the MTBPS in Parliament at least three months before the national budget is presented. The statement must include: A revised fiscal framework for the current financial year and the proposed fiscal framework for the next three years. An explanation of the macroeconomic and fiscal policy position, and macroeconomic projections and assumptions underpinning the fiscal framework. The spending priorities of government for the next three years. The proposed division of revenue between national, provincial and local government for the next three years. Any substantial proposed adjustments to conditional grant allocations to provinces and local governments. A review of spending by each national department and each provincial government between 1 April and 30 September of the current financial year. Parliament’s finance committees consider the revised fiscal framework for the current year, the proposed medium-term fiscal framework, the explanation of the macroeconomic and fiscal policy position, and the projections and assumptions. The appropriation committees examine national spending priorities for the next three years, the proposed division of revenue and adjustments to conditional grant allocations. These committees report to their respective houses of Parliament on the proposed fiscal framework and division of revenue. A report may include amendments to the proposed fiscal framework and division of revenue. The adopted reports serve as a mandate for government to prepare the forthcoming budget in accordance with the policy approach of the MTBPS. vi

1 Acttogethefroarbettefruture Introduction Shafsallenfrom4pecrendatecadaegtop2oecrenttoday. outhAfriciausndergoingdaifficuletconomitcransitionT. hterend Structuraclonstraintsand lowlevelsoifnvestor confidenceholdback economicgrowth growthrate–thaitst,helong-termaveragerateoGf DPgrowth– Thipsartlyreflectgslobarlealitiep–asrotractedslowdownintradel,ower commoditypriceasndhaighriskoefxternavlolatilityIi.taslsothreesult ocfontinuedstructuraclonstraintasnd lowlevelosifnvestocronfidencien thedomestic economy, whichhaveled to rising unemployment. Perceptionsofelevatedpoliticarliska, ndconcernsaboutheabilityof publicinstitutionstomakedecisionsondifficultrade-offsandmanage changeh,avuenderminecdonfidence. 1 TheaimotfheNationaDl evelopmenPt lanistocreateavirtuouscircleogf rowthand transformationtoeliminatepovertyandreduceinequalityB. ust incetheplan’sadoption, economiccircumstanceshavechanged.Sustainingprogresstowardsthevisionof nationadl evelopmenrtequiresanewapproachandagreatesrenseouf rgency. The2016MediumTermBudgePt olicyStatement(MTBPSa) ssumesthattheeconomic cyclehasreacheditslowestpoint.Necessaryadjustmentshavebeenpainful,buta recessionhasbeenavoidedandarecoveryis emerging.Rapidimplementationof decisionstopromotefastegr rowthwilbl oosct onfidencei,nvestmenat ndemployment. Withoudt ecisiveactiont,herecoveryislikelytobeweakandineffectual. Difficuldt ecisionswilbl emadetoensuresustainablepublicfinancesT. heMTBPSputs forwardmeasuredproposalstonarrowthebudgetdeficitandstabilisedebt.Without takingthesesteps,weriskopeningthedoortorapidcapitaloutflowsandfurther economicdisruptions, ettingbacktransformationa, ndleadingtohigheur nemployment andsociadl istress. Citizensareregisteringtheicr oncernsT. heywangt overnmenttotalklessandachieve morea, cdt ecisivelyagainsct orruptionandwastec, ontributetogrowthandjobcreation, andspeedupinclusivetransformationandsociajlusticeM. uchdependsonjoinat ction torestoreconfidenceandmobiliseprivateinvestmenttoavoidalow-growthtrap.

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Figure1T.1rendeconomicgrowth2, 000–2018 5 3 SourceN: ationaTl reasury However,positiveindicatorsareemerging.Severalfactorsthathave Opportunityfonr ewgrowth cycleexistsw, ithgreen shootsreflectedinnew investmenpt lans limitedGDPgrowthare growthcycleA. dditional receding,creatinganopportunityforanew sourceoseflectricitysupplyarbeeingconnected tothegridA. gricultureiesxpectedtorecoveartshedroughctometsoan endE. xportasndtourisrteceiptasroencaegaingrowingA.reals,ustained depreciationinth exchangeratehascreatedopportunitiesforexport growthI.nflationhams oderatedW. orkingdaylsosttostrikehsavefallen. Thgereenshootosafneconomircecoveryarreeflectedinewinvestment plans. Thespeositivdeevelopmentasrneoyte fiscallimithsavbeeenreachedT. ogr etvidenitnrevenuceollectiona,nd owfastert,heconomyneedhsigher levelsopf rivateinvestmentG. overnmenrtemainscommittedtoworking withtheprivatesector,labourandcivilsocietytopromoteinclusive growthandeconomictransformation.Thisagendaisguidedbythe NationaDl evelopmenPt lan(NDPa) ndo, vetrheshorttermt,he9-point planannouncedinFebruary2015T. heseffortasimtocreateamorejust societayndensurtehatthbeenefitostfransformationarseharedbroadly. Buildingacoalitionfofrastegr rowth Globael conomy Economicrecoveryfromthe2008financiaclrisiisms arkedbyweakness anduncertaintyG. lobagl rowthisprojecteda3t .p1ecrenitn2016and 3.p4ecrenitn2017I.nmanycountriesl,owlevelsoGf DPgrowthand risinginequalityarefeedingintopoliticaltensionR. iskstotheglobal Globael conomicrecovery markedbyweaknessand uncertainty outlooakrme agnifiedansewfractures Indevelopedeconomiest,hecombinat appeairtnhienternationaolrder. ionowf eakeconomicgrowthl,ow ornegativeinterestrates,andelevatedassetpriceshasincreasedthe likelihoodorfenewedfinanciavl olatilityR. isksincluderecord-highdebt levelsa,furtherslowdownintradeandpoliticaul ncertaintyinseveral majoerconomiesT. hoeutlookfodrevelopingeconomieisms ixedS. trong 2 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Pecrent 4.3% 4 2.1% 2 1 0 -1 -2 5.6 5.5 Averaggerowt(h200-02008) 5.3 4.2 3.7 3.6 3.6 Averaggerowt(h2010-2018) 2.9 3.1 2.7 2.2 2.2 2.0 1.5 1.3 1.3 0.5 -1.5

CHAPTER1A: CTTOGETHERFORABETTERFUTURE GDPgrowthisprojectedinIndiaandChina,buthereisariskthat China’sdifficulteconomictransitioncouldleadtolowergrowthw, ith globarlepercussionsT. heoutlookforsub-SaharanAfricaismarkedby lowcommoditypricesandfallingexportrevenues.Growthofonly 1.p4ecrenietsxpecteidnthreegionfo2r016. Smallo, peneconomielsikeSouthAfricarevulnerabletoglobaslhocks. Economicweaknessonthe Africancontinenitsof particulacroncernfoSr outh Africa’sgrowthprospects Insufficient fiscal policy space a nd inability to address financial weaknessecsouldexpostehemtosuddencapitafllowreversalsE. conomic weaknessontheAfricancontinenat ffectsSouthAfricadirectlyS. lower growtihtnhreegioanndglobatlradwe eakneslsimietxporptotential. Restoringdomesticconfidence SouthAfrica’seconomicperformancecontinuestoreflecltowlevelsof businessandconsumerconfidenceT. heGDPforecasht asbeenrevised downto0.p5ecrentfor2016.Publicinvestmentremainsrelatively buoyantb, upt rivateinvestmenht asfallenacrossalslectorsa, ndcapital formatioinesxpectetdcoontracit2n016fotrhfeirsttimseinc2e010. Table1M.1acroeconomicprojections2, 015–2019 0 4616.9 4981.1 5385.3 SourceR: eserveBankandNationaTl reasury Severaelmergingfactorsh, owevers, upporatneconomicrecoveryS. ince 2010t,hereaelxchangeratehads epreciatedby20.p9ecrentc,reatingan opportunityfoSr outhAfrictaoincreasexportsO. vetrhme ediumterma, moderaterecoveryincommoditypriceisesxpectedL. oweirnflationr,eal waggerowthandimprovedhouseholdbalancseheetasrexpectedtoboost consumesrpendingL. owborrowingcostsandhighecr apacityutilisation pointtoarecoveryinfixedinvestmentA. neasingodf roughctonditions andnewelectricitygeneratingcapacityshouldalsocontributetofaster growthO. vetrhenexthreeyearsp, ublic-sectoirnfrastructurespendingis projectedatR987.b4illion,withsubstantialinvestmentsinenergy, transporth,ousingw, atearndsanitation. Maximisingthebenefitostfhesedevelopmentfsotrheconomydepends ondecisiveactionstorestoreconfidence.Governmentiscreating conditionfsohrighecronfidencaendinvestmenbty: Actionstorestore confidenceincludefinalising aregulatoryframeworkfor private-sectopr articipation • Finalisingaregulatory frameworkforprivate-se ctorparticipationin infrastructureprojectsi,ncludinginitiativesinpartnershipwithstate-ownecdompanies. • Addressinglegislativeandregulatoryuncertaintiesthatholdback investmenitmn ininga,griculturaenkdetyechnologsyectors. 3 2015 CalendayrearActual 2016 Estimate 201720182019 Forecast Percentagechangeunlessotherwiseindicated Finahl ouseholdconsumption1.70.6 Grossfixedcapitaflormation2.-52.9 1.3 1.1 1.92.3 2.63.1 ReaGl DPgrowth01.5.3 GDPact urrenpt rices(Rbillion)4013.64300. 1.3 2.02.2 CPiInflation46.6.4 Currenat ccounbt alance(%oGf DP)-4.3-3.9 6.1 -3.9 5.95.8 -3.8-3.8

2016MEDIUMTERMBUDGETPOLICYSTATEMENT • Rationalisingc, losingorsellingoffpublicassetsthaat renolonger relevanttogovernment’dsevelopmenatgendaa,ndstrengtheningthose thaatrceentratloachievinNg DPobjectives. • Concludinlgaboumr arkerteforms. Governmenitws orkinginpartnershipwithbusinesasndlaboutrobuilda PresidentiaBl usiness WorkingGroupandCEO Initiativearegenerating supporftoer conomy foundationforfastergrowth.This workisdirectedatencouraging investmenitnnetworkinfrastructures, treamlininginvestmenat pprovals andimprovingpolicycertaintyT. hPe residentiaBl usinesWs orkingGroup andtheCEOInitiativearegenerating targetedsupporttotheconomyby creatingfundstosupportsmallbusinessandofferinginternshipsto 1million young work seekers. The Independent Power Producer ProgrammienrenewablenergyhaasttractedinvestmentosRf 19b4illion. Theprogrammew, hichwilcl ontinueandexpandi,sanexampleotfhe kinodpfartnershipnseedefdonrationadlevelopment. Overthemediumterm,public-sectorinfrastructureinvestmentwill continuetosupportdomesticdemand,bolsterproductivecapacityand contributetosocialinclusionI. tisessentialthatprivateinvestmentis encouragedtcoomplementthesefforts. Ameasuredfiscacl onsolidation Reagl overnmenstpendingpecrapitadoubledinthefirsttwodecadeos f Budgeet xceedsR1trillion peyrearb, uqt ualityof publicexpenditureneedsto beimproved democracy.Thenationalbudgetno wincludescommitmentsofpublic resourceesxceedingR1trillionpeyrearY. etthqeualityosfpendingneeds tobeimprovedT. oomuchpublicspendingisregardedaswastefult,oo muchiisneffectiveltyargetedantdoolittlreepresentvsalufeomr oney. Moreovers,ince2009ag, rowingportionosfpendinghabs eenfundedby borrowingG. overnmentdebtnowexceedsR2trilliona, ndrisingdebt-servicceostasrecrowdingouetxpenditureonprioritielsikienfrastructure andeducationL. oweconomicgrowt halsimitedgovernment’asbilityto financietesxistingcommitmentasndsustainhighelrevelosdfebt. Figure1M.2ainbudgest pendingpecr apitain2015prices* *Non-intereset xpendituree, xcludingfi SourceN: ationaTl reasury nanciatlransactionsd, eflatedbyCPI 4 2019/20 2017/18 2015/16 2013/14 2011/12 2009/10 2007/08 2005/06 2003/04 2001/02 1999/00 1997/98 Consta2n0t1r5and 2000 10800 10600 10400 10200 1000 0800

CHAPTER1A: CTTOGETHERFORABETTERFUTURE Table1C.2onsolidatedgovernmenftiscaflramework2, 015/16–2019/20 SourceN: ationaTl reasury Mediumterma: voidingalow-growthtrap Sincteh2e009recessionf,iscaalndmonetarypolicyhavbeeensupportive Fiscaal ndmonetarypolicy havebeensupportiveof economicrecovery otfheeconomicrecoveryO. vetrhe mediumtermf,iscapl olicyaimsto stabilisdeebts,othahtighelrevelossfpendingcabnseustained. Bufturthedr eteriorationotfh economycouldleadSouthAfricaintoa low-growthtrapI.nthisscenario, weakGDPgrowthproduceslesstax revenueA. ggressivfeiscaclonsolidation–inothewr ordss,teptsocontain thdeeficiatndstabilisdeeb–mt aybolstecronfidenceb,uctanundermine theconomyT. akingnoactioncouldresulitnratingdsowngradesc,apital flightr,apidexchangeratedepreciationandaspikeininteresrtatesS. uch developmentswouldthrowupgreaterchallengesforprivateandpublic investmenptlansa,ndcoulrdesulitnevelnowegrrowtohutcomes. Toavoidthistrap,governmentproposesabalancedconsolidation. Proposalisncludeacombinationotfaxpolicymeasuretshawt ilrlaisean additionalR43billionoverthenextwoyearsa, ndareductioninthe expenditureceilingofR26billion.Thesestepsfollowconsolidation Expenditureceilingwibll e reducedandtaxmeasures introducedtoraise additionarlevenue measuresannouncedinthe2015and 2016BudgetsI.fthesenecessary trade-offasreaccompanied byhighelrevelos f economicgrowth–which ips ossibleiffreshimpetuisgs iventoprivateinvestmen–itwt ilclreate morespaceforflexibilityonfiscaltargetsoverthemediumterm. Conversely,continueduncertaintyonmajorfactorsthataffectthe economywilnlarrowfiscarloomtomanoeuvre. Longtermr:ealistictrade-offsrequired TheConstitutionrequiresgovernmenttopursueaprogressiv expansion oafccestsopubliscervicews ithinits availablreesourcesT. orealistehese aspirationsS, outhAfricnaeedtsoaccelerattehpeacoeefconomigcrowth. TheNationalTreasury’smodellingindicatesthatifthetrendrateof economicgrowthremainsbelow2pecrentforanextendedperiod, governmenmt aynobt eabletosustainitscurrenpt olicycommitments. Choicews ilnleetdobme adaebout whicphrogrammecsabnme aintained. Atthesametimep, roposalhs avebeentabledfoasrubstantiaelxpansion of spending commitments in health, education, defence, social developmenat ndinfrastructureT. herearecleabr enefitsassociatedwith Fiscarlesourcesdonot matchlong-termpolicy aspirations eachoftheseproposals.However, ifimplementedsimultaneously,the costswouldbeincompatiblewithfiscaslustainabilityT. helimitedspace availablteoincreasteaxationcannoatccommodataeloltfhesaeimsE. ven 5 2015/162016/ Rbillion/PercentageoGf DPOutcome 172017/18 Revised 2018/192019/20 Medium-termestimates Revenue1221300.19.0 29.9% Expenditure1371435.1.5 33.6% Budgebt alance-152.2 -3.7% 1416.9 29.7% 1564.0 33.1% -150.5 -3.4% 1537.91670.4 30.1%30.3%30.4% 1676.01809.4 33.3%33.0%33.0% -147.1-138.2-139.0 -3.1%-2.7%-2.5% Totanl eltoandebt1804.6 2004.4 44.2% 209.2 45.8% 2417.12632.4 47.0%47.6%47.9%

2016MEDIUMTERMBUDGETPOLICYSTATEMENT in the most optimistic growth scenario, a phased approach to implementationbaseodcnaleacrhoicoepfrioritieisrsequired. Difficulttrade-offasrneeededtoresumtehexpansionopfublircesources availablefosrociaalndeconomicdevelopmentF. onr owh, oweverl,ong-termpolicyaspirationfsaerxceeadvailablreesources. Table1C.3onsolidatedgovernmenet xpenditure2, 016/17–2019/20 8 4 9 261.9 198.9 210.7 280.6 214.2 224.6 4 6 225.8 212.1 239.6 228.3 8.0% 0 193.3 208.9 394.3 6 1485.2 180.8 1592.2 197.2 564.0 1676.0 1809.4 SourceN: ationaTl reasury Fundingpost-schooel ducationandtraining Themovementofuniversitystudentsdemanding“feesmustfall”has placedtheissueoefducationfundingat thecentreotfhepolicydebateI.t haaslsgoeneratedwelcomseuggestionosnhowtofuntdertiareyducation. TwoconcernlsieatthheearottfheissueF. irstd,espitme assiveincreases inallocationtsothNe ationaSl tudenFt inanciaAl idSchem(eNSFAS)t,he enrolmenotafcademicallydeservingstudentfsrompoocrommunitiehs as grownfasterthanavailablefundingS. econdt,hereisnoclearnational frameworkfofrinancingstudentws ho–althoughnoatffluen–atraebove themodestthresholdestablishedbytheNSFASmeanstestA. saresult, manystudentsfacefinancialhardshipsthatunderminetheirabilityto succeeadcademically. Governmenhtassignificantlyexpandedfundingoefducationovetrhpeast 20yearsB. asiecducationitshleargesitteminthneationabludgetB. utthe educationsystemisnotachievingthedesiredoutcomes.Prioritiesfor Financiahl ardshipaffects abilityomf anystudentsto succeedacademically Interventionsneededto improvevocationaal nd technicael ducation governmenitnthyeearasheadinclud expandingaccestsoandthqeuality oef arlychildhooddevelopmento, vercominginstitutionawl eaknessesin basiceducationb, roadeningaccesstoeffectivevocationaal ndtechnical skills,andimprovingtheimpactofresourcesdevotedtovocational trainingI. nalltheseareasa, dditionalresourcesmaybeneeded–and stronginterventiontsuonblociknstitutionaclonstraintasrreequired. Government’s current policy frame work calls for the progressive expansionopfost-schooelducationwithinavailablreesourcesT. hleargest gainisnstudenatccesasrenvisagedintechnic alndvocationaclolleges. 6 2016/17 Revised Rbillion 2017/182018/192019/20 Medium-termestimates Average annual growth 2016/17– 2019/20 Basiceducation 228.4244. Health 169.3184. Defencep, ublicordear ndsafety 189.5197. Post-schooel ducationandtraining 687.6.6 Economicaffairs 207.6216. Humansettlementsandmunicipailnfrastructure 181.1 197. Agriculturer,uradl evelopmenat ndlandreform 26.3 26.9 Generapl ublicservices 676.98.8 Sociapl rotection 165.180. 81.189.3 28.430.34.8% 73.076.4 7.1% 8.2% 5.8% 9.2% 4.9% 4.1% 8.2% Totael xpenditurebyfunction1303.81 Debt-servicecosts147.7163. Contingencyreserve– 10.06.020.0 6.9% 10.1% – Totael xpenditure1451.51 7.6%

CHAPTER1A: CTTOGETHERFORABETTERFUTURE Improvingthequalityotfeachingatthesecollegeasndbuildingstronger linkws ithindustry–sothastkillasrerelevanatndcansupporetconomic growta–hrpeoliciymperatives. Figure1I.n3dexobf udgeat llocationsinreatlerms,* 2011/12–2019/20 *DeflatedbyCPiInflation SourceN: ationaTl reasury Ovetrhpeasftivyeearse,xpenditur oenpost-schooelducationandtraining Spendingonpost-school educationandtraininghas grownfastetrhanother budgetsinrecenytears hasgrownmuchfasterthanotherbudgetsA. llocationshaveincreased from1pecrenot fGDPin2008to1.p5ecrenttodayB. umt osot fthis increasebenefitedvocationalcolleges,sectoreducationandtraining authoritieasndthNe ationaSl killFs undr,athetrhanuniversitiesT. h2e016 MTBPSproposestoacceleratethegrowthofspendingonpost-school education.Despitefiscalconstraints,subsidiestouniversitiesgrowat 10.p9ecrenetachyeaarntdransfers toNSFASgrowa1t8.p5ecrent. Figure1P.4ost-schooel ducation andtrainingbudgeat sshareoGf DP I*ncludesdirecstubsidies SourceN: ationaTl reasury andallocationsthroughNSFAS 7 2019/20 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10 2008/09 2007/08 2006/07 2005/06 2004/05 2003/04 2002/03 2001/02 2000/01 2019/20 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2012/13 2011/12 PercenotGf DP Inde(x2011/11=200) OtherEstimate 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Skilllsevy Technicaalnvdocationaclolleges* Universities* 140 130 120 110 100 90 Post-schooelducatioanntdraining Health Sociaslecuritaynwd elfare Basiecducation Police Defence Medium-term expenditure frameworekstimates

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Buildingonthesuccessfulexpansion ofaccesstohighereducation, Clearroadmapneededto financestudycostsopf oor andworking-classtudents governmenatcknowledgetsheneedtocorrecittcsourseandincreasethe numbeorgf raduatesw, hileimprovingteachingandresearchA.roadmap isneededtofullyfinancethecostsosftudyfosrtudentsfrompooar nd working-clasfsamiliesT. hpelaneedtsoconsidetrhiempacotdfifferent educationinterventiontsomaximisseo ciaalndeconomitcransformation. UniversityeducationbenefitsocietyI.atlsoimprovegs raduatesi’ncome andemploymenpt rospectsT. hosewhog ontobecomeaffluenctitizens havearesponsibilitytocontributeashareofthesegainstothenext generationI.nhigheerducationa,isnalalreaospf ublicpolicyd, ecisions andtrade-offsarerequiredtoensurebalanceds,ustainabledevelopment thamt eettshveasnteedostfhpeopulatiounsingavailablreesources. Institutionsandincl usivetransformation SouthAfrica’asbilitytosustainsociaalndeconomipcrogresisssupported bythseoundinstitutionaflrameworkestablishedbythCe onstitutionanda vibrantcivilsociety.TheAuditor-General,theReserveBank,the IndependenEt lectoraCl ommissiont,hPe ubliPc rotectoarndthceourtasre amongthemanyinstitutionsthaat reeffectiveandindependentP. olicy-makingirsootedintheConstitutionw, hichsetos uthebasicvalueasnd principleospfubliacdministrationi,ncluding: Basicvaluesandprinciples opf ublicadministration includetransparency, efficiencyandimpartiality • • • • • Ahighstandardopfrofessionaelthics Efficiente,conomiacned ffectivuesoerfesources Anorientatiotnowardevelopment Thiempartialf,aire,quitablaen Transparency. dbias-freperovisioonsfervices TheConstitutionassignstheNational ensurteransparencyandexpenditurce Treasurywith eresponsibilityto ontroilneachspheroegfovernment, Publicperceptionisthat statecorruptionandrent seekinghavegrown andtoenforcecompliancewiththeseobjectivesI.atlsostatetshapt ublic procuremenmt usbt efaire,quitable, corruptionhasalwaysexistedinthep transparenatndcost-effectiveW. hile ublicandprivatesectorst,hereare perceptionsthast tatecorruptionandrenst eekinghavegrowninrecent yearsS. uchpracticesi,fnoct ombated withvigourt,hreatentocorrode trustininstitutionsandsetbacknationaldevelopmentG. overnmentis committedtopromotinginclusiv economictransformationthroughfair, transparenpt rocessesT. hebenefitosefmpowermensthouldbeaccessible oanenquablasisn,oltimitedtoconnecteidnsiders. Forthcomingprocurementregulationswilsl upporthisobjectivew, hile balancingtransformationailmperativeswiththeneedfoer fficientr,apid deliveryO. vetrhepasyt eart,heO fficeotfheChiePf rocuremenOt fficer hastrengthenedreformsaimedaet nsuringgreatevr aluefomr oneyand combatingcorruptionacrostshepublicsectorD. uring2017n, ewnational procuremenltegislationwilblteabledinParliament. Conclusion WithdecisivaectionS, outhAfricwa ilelmergferompaeriodoefconomic weaknessT. hiswilel nablegovernmenttoprovidegreatesrupporttothe economayndboosetmployment. 8

2 Economicoutlook Economicgrowthandtransformation Tdecisivaectionpa,rotractedperiodolfowgrowthwilslebtackthe oachievethegoalofeconomictransformationandbuildan Lowgrowththreatensto blockSouthAfrica’s economictransformation equitablesocietyS, outhAfricare quireshighergrowthW. ithout country’asbilitytorealistehceonstitutionavlisionto“improvtehqeuality olfifeoaflclitizenasndfreethepotentiaolefachperson”T. heNational DevelopmenPt lan(NDP)recognisesthaftasterb, road-basedgrowthis neededtotransformtheeconomyc, reatejobsa, ndreducepovertyand inequality. Whileglobaleconomicweaknessplay economicgrowthperformanced, omestic salargeroleinSouthAfrica’s constraintstandinthewayof investment,outputandtrade.Theslowpaceoffinalisingpolicy interventionisnareasuchaslandreformi,mmigrationl,abourelations, miningandcommunicationsunderminesconfidence,whichisakey determinantofeconomicactivityG. overnmentmustdemonstratemore rapiidmplementatiotnorestorceonfidencaengdivheoptecoitizens. 9 Inbrief • Theeconomicgrowthestimatefo2r 016hasbeenrevise downto0.5pecrenftrom0.9pecrent. • TheNationaTl reasuryforecastsamoderaterecoveryoverthenexthreeyears,withGDPgrowth reaching2.2pecrenitn2019assupply-sideconstraintsbecomelessbindingt,heglobael conomy recoversa, ndbusinessandconsumecronfidencerebound. • Theinflationforecasht asbeenreviseddownto6.4pecrenfto2r 016I.nflationisexpectedtoremain closeto6pecrenat nnuallyovetrhemediumterm, withupwardpressurefromelectricityprices. • Householdconsumptionexpendituregrowthisprojectedtoreach2.3pecrenitn2019. • Investmenbt ygeneragl overnmenitsexpectedtoaverage4.8pecrengt rowthovetrhemediumterm, withinvestmenbt ypublicorporationsreaching2.3pecrengt rowthin2019. • GovernmenthasbudgetedR987.4billionforinfrastructureoverthenextthreeyears,withlarge investmentscontinuinginenergyt,ransporat ndtelecommunications. • Fiscaal ndmonetarypolicysupporatsustainablerecoveryineconomicactivityR. apidprogresson NationaDl evelopmenPt lanreformscanbolstecronfidenceandpromoteinvestment.

2016MEDIUMTERMBUDGETPOLICYSTATEMENT SouthAfrica’sstronginstitutions, stablemacroeconomicenvironment, Fiscaflrameworkand monetarypolicystance supporstustainable recoveryineconomy well-developedfinancialmarkets,relativelyhighlevelsofinnovation capacityandstrategicpositionintheregionprovideasolidplatformfor strongergrowthT. hefiscaflrameworkandthemonetarypolicystance supporsatustainablreecoveriyneconomiacctivity. Governmentcontinuestoprioritiseinfrastructureinvestmenttoease bottlenecksandraiseth economy’spotentiagl rowthrateP. ublic-sector infrastructurebudgetstotalR987.b4illionoverthenextthreeyears. Continuedinvestmenitnenergyt,ransporat ndtelecommunicationswill boostinternalandexternaltradeefficiency.Effortstoexpandco-investmenwt iththperivatseectora,longsidsaeerieosoftheNr DPreforms discussedlaterinthischapterw, ilbl uildconfidenceandencouragejob creation. Figure2G.1DPgrowthandbusinessconfidence2, 005–2016 SourceR: MBBERBusinessConfidenceIndexS, tatsSA Globaol utlook Theglobarlecoveryfromthe2008financiacl risisremainsprecarious, Worldeconomyforecastto growby3.4pecrenitn 2017 withgrowthforecasat3t .p1ecrent in2016and3.p4ecrenitn2017I.n developedeconomiest,hecombinationowf eakeconomicgrowthl,owor negativeinterestrates,andelevatedassetpriceshasincreasedthe likelihoodorfenewedfinanciavlolatilityW. orldtradgerowthforecastfsor 2016havebeenreducedfrom3.p1ecrentinAprilto2.p3ecrentin OctoberG. lobadl ebht arsisentoUS$15t2rillion–morethandoublethe sizeoftheworldeconomyA. boutwo-sectodrebta,ndpublic-sectobrorrowi thirdsofthisamounitsprivate-nghsavaelsioncreasedsharply. Riskstoglobaol utlook includeexcessivedebt, weakegr rowthinChinaand politicaul ncertainty Riskstotheglobaloutlookincludeexcessivedebtlevels,further deteriorationinChinesegrowthratesc, ontinueddeclinesincommodity priceasndpoliticaulncertaintyinseveraml ajoerconomiesO. vetrhsehort termt,heUnitedKingdom’sintentiontoleavetheEuropeanUnion(EU) wilrlemainasourceofinanciavl ola tilitya, longsideconcernsaboutthe healthomf ajoEr uropeanbanksB. rexit’slong-termeffectsi,ncludingon SouthAfricad, ependontimingandthenatureoftradeandinvestment treatietsboneegotiatedwiththEe U. 10 Se2p016 Ma2r016 Se2p015 Ma2r015 Se2p014 Ma2r014 Se2p013 Ma2r013 Se2p012 Ma2r012 Se2p011 Ma2r011 Se2p010 Ma2r010 Se2p009 Ma2r009 Se2p008 Ma2r008 Se2p007 Ma2r007 Se2p006 Ma2r006 Se2p005 Index Percentagcehang(eq-o-q) BusinescsonfidenceGDgProwt(hrighatxis) 907.5 75 605.0 45 2.5 30 150.0 0 -15-2.5

CHAPTER2E: CONOMICOUTLOOK Thoeutlookfodrevelopingeconomieisms ixedG. DPgrowthipsrojected toremainresilienitnIndiandinChinaA.returntomoderateconomic growthisexpectedinBrazilandRussiain2017,followingtwo consecutivyeearosefconomicontraction. Table2A.1nnuapl ercentagechangeinGDPandconsumepr riceinflations, elected regions/countries2, 015–2017 US 2..16 0.72.0 12..92 10..55 1.6 1.7 1.8 0.5 2.2 1.5 1.1 0.6 2.0 1.7 2.9 0.4 Euroarea UK Japan Brazil -33.8.3 -32.7.8 7..36 86..69 -3.3 -0.8 0.5 1.1 5.9 7.0 8.9 3.2 Russia India 7.6 6.6 7.6 6.2 China 2 1.3 2.5 0.5 1.3 5.3 SouthAfrica 1I.MFWorldEconomicOutlookO, ctobe2r 016 2N. ationaTl reasuryforecasts Lowinteresrtateps revailingintheUnitedStatesE, uropeandJapanhave supportedcontinuedcapitalinflowsintodevelopingeconomies.This stimulus,however,hasnotranslatedintohigherprofitabilityofnon-financialfirms,moreinvestment,strongereconomicactivityormore positivexpectationasbouGt DPgrowthP. roductivitygrowt haslowed acrosasdvancedandemergingeconomiesC. ountrietshaatrheighlyreliant onforeignsavingss,uchaSs outhAfricaw, ilrlemainvulnerablteoglobal financiavlolatilitayndrapicdapitaolutflows. Theoutlookfosrub-SaharanAfricaismarkedbylowcommodityprices anfdallingexporrtevenuesw, hichavleedtoforeign-currencsyhortages. The2016growthforecastfortheregionhasbeenrevise downfrom 3pecrenitnApritlo1.4pecrentw, ithlarg economiesuchasNigeria andAngolahardhibt ylowoipl ricesanddisruptionsinproductionI.n contrastE, thiopiaK, enyandSenegaalrexpectedtorecordgrowthrates oofvep5recrent. SlowergrowthintheregionandglobaltradeweaknesslimitSouth Africa’esxporptotentialG. reateerconomiicntegrationwiththreesottfhe continenwt ouldenablexport-orientatedSouthAfricanfirmtsocapitalise Growthforecasftosrub-SaharanAfricarevised downw, ithlargeeconomies affectedbylowopil rices onstrongeprocketosgfrowthanidncr easteheisrharoeAf fricantrade. 11 Regionc/ ountryAverageGDPgrowth 1 Percentage2010–2014201520162017 AverageAverageCPI 1 2010–2014201520162017 World3.2 4.03.13.43.9 Advancedeconomies21.1.81.61.81.8 Emergingmarketsand4.0 5.74.24.65.7 developingcountries Sub-SaharanAfrica3.45.31.42.97.9 2.82.93.3 0.30.81.7 0.11.22.3 0.00.31.1 0.10.72.5 0.8-0.20.5 4.74.54.4 9.09.05.4 15.57.25.0 4.95.55.2 1.42.12.3 7.011.310.8 4.66.46.1

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Figure2G.2rowthinsub-SaharanAfrica2, 014–2017 *ValuedaPt PP-adjustedrates SourceI:MFWorldEconomicOutlookO, ctober 2016N, ationaTl reasuryforecast TheNationaTl reasury’seconomicfor ecasitncorporatestheoutlookfor 15majortradingpartnersaspresentedintheOctober2016 EconomicOutlook p, ublishedbytheInternationaMl onetaryFund(IMF). Averaggerowtoh4f.p1ecreniftsorecasftotrheseconomieis2n017. World Domesticoutlookanddevelopments DomesticGDPgrowthfo2r016f,orecasat0t.p9ecrenathteimoetfhe 2016Budgeth,abseenrevisedownto0.5pecrentG. rowthiesxpectedto increaseto2.2pecrenbt y2019s, upportedbymorereliableelectricity supplyi,mprovedlabourelationsl,owinflationa,recoveryinbusiness andconsumerconfidence,stabilisingcommoditypricesandstronger globalgrowth.Assumptionsunderpinningtheforecastappearinthe technicaalnnexure. Growthinreaolutpurtemainedmoderatienthfeirsstimx onthostfhyeear comparedwiththesameperiodin2015M. inin growt hads eclinedand Stableelectricitysupplyand recoveryinconfidencewill supporitmprovedGDP growth agriculturaloutputweakenedasa resultofthedrought.Growthin transporatndtelecommunicationsa,ndinelectricityg,aasndwaterf,eloln weakdemandM. anufacturingoutpusttrengthenedfollowingcaontraction i2n015F.inancer,eaelstataendbu sinessservicersemainedbuoyant. Overviewomf ajoer conomicsectorsandemployment Twosuccessiveseasonsof severedroughht ave resultedinasharpfailln agriculturaol utput Reavl alueaddedintheagriculturef,o restryandfishingsectocrontracted by8.p3ecrenitnthefirsht alof2f 016comparedwiththesameperiodin 2015T. wosuccessiveseasonsosfeveredroughitnthesummerainfall regionsresultedinsixconsecutivequartersofallingoutputf,ollowing robusgt rowthin2014A. arsesult, SouthAfricawilbleaneitmporteor f maizien2016/17w, ithimportesxpectedtoexceed2milliontonsE. xports ocfertainfruitn, utasndbeepf roducths averemainedresilients,upported bytheweakerandg, lobadl emandandmarkedt iversificationO. utpuits expectetdorecovearws eathecronditionismprove. 12 2017 2016 2015 2014 Pecrent Sub-SaharaAnfric(aexcludesSoutAhfricanNd igeria)*NigeriaSoutAhfrica 8 6 4 2 0 -2

CHAPTER2E: CONOMICOUTLOOK Miningproductionwasdown8.3pecrentinthefirsthalfof2016 comparedwiththesameperiodin2015.Highoperatingcosts,safety stoppagesl,owcommoditypricesandweakglobadl emandmadefora difficulotperatingenvironmentO. vetrhme ediumtermi,mprovedemand andincreasedelectricitysupplyshouldboospt roductionI.nadditiona, moderateriseincommoditypricesthatbeganin2016isexpectedto continue. Manufacturinghacsontributed0.p2ecrenttgorosvsaluaeddedinthfeirst halof2f016w, ithperformancvearyingacrossubsectorsP. etrochemicals, woodandpapera,ndfoodandbeverageps ostedgrowthrateso6f .55, .3 and0.p9ecrent,respectively.Incontrast,metalsproductsandmotor vehiclescontractedby3.p6ecrenat nd0.p5ecrenrtespectivelyO. verall capacituytilisatioinmprovedinthfeirshtalof2f016. Commoditypricesexpected torisemoderatelyover mediumterm Figure2C.3ontributiontoeconomicgrowthbysector2, 011–2016 *2016figuresreflectthefirs stixmonthsotfheyear SourceS: tatsSAandNationaTl reasury Amoderatreecoveryinhouseholdconsumptiongrowthfrom2017should suppordtomestidcemandinfoodandbeveragesm, otovrehiclesf,urniture andappliancesC. ontinuedglobadl emandiesxpectedfomr otovr ehicles, withexportosffinishedunitssettogrowbyove1rp0ecrentthiyseaarnd next. Thefinanciasl ectorgrewby2.p2ecrendt uringthefirsht alfof2016 comparedwiththesameperiodin2015d, espitelowGDPgrowthand constrainedhouseholdbalancesheets.Domesticbanksremainwell capitalisedw, ithatotacl apitaal dequacyratioof15.2pecrenitnJune 2016u,pfrom14.2pecrenitnDecembe2r015“.Tie1r”capitaaldequacy –thheighesqtualitycapitarleserve–stooda1t2.p4ecrenitnJun2e016, SouthAfricanbanksremain wecllapitalisedandexceed BaseIlIrIequirements welilnexcesosBf aseIlII’s 6pecrenrtequirement. Inth1e2monthtsoJun2e016e,mploymenftelbly110200I.nthceontext oaf nunfavourableconomicandinve stmenctlimatet,heunemployment raterosefrom25pecrento26.p6ecrentA. ccordingtotheJune2016 QuarterlyEmploymenSt tatisticsa,lslectorasparftromconstructionshed 13 2016* 2015 2014 2013 2012 2011 Pecrent GeneraglovernmenstervicesFinancer,eaelstataenbdusinessservices Transports,toragaencdommunicationManufacturing MininagnqduarryingAgriculturef,orestraynfdishing Resotfheconomy 3.5 2.5 1.5 0.5 -0.5

2016MEDIUMTERMBUDGETPOLICYSTATEMENT jobsinthesecondquarterof2016.Areturntoemploymentgrowth requirehsigheerconomigcrowtahndrenewedprivate-sectoirnvestment. Householdconsumption Growthinhouseholdspendingdeceleratedto0.p8ecrenitnthefirsht alf otfheyearf,rom1.7pecrenitnthesameperiodin2015G. rowthinreal householdisposabliencomew, hichreached2.p2ecrenitn2015s,lowed toanannualised0.p7ecrenitnthefirsht alof tfheyearH. ouseholdnet wealthfeltlo386pecrenotdf isposableincomeinthesecondquarteor f Householdspendinggrowth slowedandnewt ealthas shareodf isposableincome declined 2016c,omparedwith39p1ecrenyatear earlierI.nthfeirsstevenmonths of2016,theJohannesburgStockExchangeAllShareIndexwas 1.p7ecrentlowerthanthecorrespondingperiodin2015,reducing householdwealth. Table2M.2acroeconomicprojections2, 013–2019 300.0 4616.9 4981.1 5385.3 .9 -3.8 -3.8 SourceR: eserveBankandNationaTl reasury Consumerconfidenceremainslowandhigherinflationhasreduced householdpurchasingpowerS. pendingondurablegoodshasdeclined sincethefirstquarterof2015C. reditextendedtohouseholdsremains subdueda,hsigheirnteresrtateasndtightelrendingconditiondsiscourage borrowingI.nthesecondquarteor 2f 016a, pplicationsfocr rediftelbl y 1p8ecrent, while the rejection rate remained relatively high, at 54.p4ecrentT. heratiohfousehol debttodisposabliencomehaesased to75.p1ecrenottfotadlisposabliencomferom77pecrenyateabrefore, buhtigheirnteresrtatehsavreaisepdressuroendiscretionarsypending. Householdconsumptionexpenditureipsrojectedtoriseby0.p6ecrenitn 2016,graduallyrisingto2.p3ecrentin2019,supportedbylower inflationw, aggerowthanidmprovehdouseholbdalancseheets. Fixedinvestment Capitalinvestmentdeclinedby2.p6ecrentinthefirsthalfof2016, comparedwit3ha.6pecrenitncreasienthceorrespondingperiodo2f015. Thecontractionresultedfromreducedprivateinvestmenitnaclimateof weakbusinessconfidence.Investmentbypubliccorporationsfellby 2.p6ecrentinthefirsthalfof2016,fromanaveragegrowthrateof 3.7pecrenbt etween2012and2015O. vetrhesameperiodg, overnment investmengt rowthaveraged8.p6ecrentb,ustlowedto5.p8ecrenitnthe firshtalof2f016T. hselowdownreflectgseneradlelaysd,ecliningrevenue growtahndeterioratinbgalancseheetasstomsetate-owneednterprises. Investmenbt ypublic corporationsfebll y 2.6pecrenitnfirsht alof f 2016 14 Calendayr ear201320142015 Actual 2016 Estimate 201720182019 Forecast Percentagechangeunlessotherwiseindicated Finahl ouseholdconsumption02..701.70.6 Finagl overnmenct onsumption13..80.20.7 Grossfixedcapitaflormation17..502.5-2.9 Exports33..364.10.5 Imports-0.5.05.3-2.9 1.3 0.1 1.1 3.0 2.7 1.92.3 0.00.3 2.63.1 4.75.2 4.14.7 ReaGl DPgrowth12..631.30.5 1.3 2.02.2 GDPinflation56..764.06.6 GDPact urrenpt rices(Rbillion)3549.23812.64013.64 CPiInflation(Dec2012=100)65..184.66.4 Currenat ccounbt alance(%oGf DP)-5.9-5.3-4.3-3 6.0 6.1 .9-3 5.85.7 5.95.8

CHAPTER2E: CONOMICOUTLOOK Thpeatternorfeducedinvestmenitws idespreadI.nthfeirshtalof2f016, capitaflormationinmanufacturingcontractedby10.p3ecrentw, hilein transporstervicesi,nvestmenftelbly6.p3ecrentI.nvestmenctontinuedto growinelectricityandsociasl ervicesasaresulot fcapitaol utlayson renewablenergaynpdubliicnfrastructure. Energaynidnfrastructurienvestmenptrovidpaelatformfohrighegrrowth. Toincreaseoutputh, owevert,h economyrequiresinvestmenitnother productiveassetsS. pendingonmachineryandequipmenthasdeclined Investmenrtequiredto reverseaconsistenet rosion omf anufacturingbase sharplyI.ifnvestmenitisnsufficien toreplacewornassetst,heresulting capitaelrosioncanweakentheconomy’gsrowthpotentialw, ithnegative consequencesforjobcreation.Therehasbeenaconsistentdeclinein manufacturingfixed-capitalstock,whichfellby11.p3ecrentbetween 200a8nd2015s,ignallinganerosionotfhme anufacturinagssebtase. Severalindicators–amorecompetitiveexchangerate,increased manufacturingcapacityutilisations, trongcorporatebalancesheetsand generallylowborrowingcosts–poin tohigherinvestmentoverthe mediumtermA. lthoughinvestmentisexpectedtocontractin2016i,t shouldgrowin2017I.nvestmenbt ygeneragl overnmenitsexpectedto average4.p8ecrentgrowthoverthenextthreeyears.Investmentby publicorporationisesxpectedtoreac2h.3pecrengtrowthin2019. Investmenitsexpectedto contracitn2016r,eturning togrowthnexytear Neet xportsandthecurrenat ccount Exportgs rewby3pecrenitnthesecondquarteor2f 016comparedwith thseampeeriodin2015s,upportedbymanufacturingandminingexports, Exportsgrews,upportedby performanceopf latinum groupmetalsb, uet xportsto Africaaredown particularlyplatinumgroupmetalsT. h efirsht alof tfheyeasrawatwo-percentage-pointdeclineintheshareofexportstoAfricanmarkets comparedwiththesameperiodin conditionistnhreegion. 2015,reflectingweakereconomic Table2D.3istributionoSf outhAfricanexportsbycountry/region 2005 2010 2013 2014 2015 1 13.2% 33.3% 2.7% 10.3% 9.5% 31.0% 24.9% 20.5% 9.0% 7.0% 7.9% 30.8% 27.8% 17.7% 12.9% 5.7% 7.2% 28.7% 29.3% 19.5% 9.8% 5.4% 7.0% 29.0% 28.0% 20.7% 9.2% 5.0% 7.6% 29.5% Sub-SaharanAfrica EuropeanUnion China Japan UnitedStatesoAf merica Other 1S. ub-SaharanAfricaincludesEasAt fricaW, esAt fricaM, iddleAfricaS, ACU, andSADCexcludingSudan SourceQ: uantecdata Inrecenytearsd,espittehleargaend sustainedepreciationinthvealuoef therandS, outhAfricahasnoet xperiencedstrongexporgt rowthS. ince 15 SouthAfrica’scompetitivenessrankingimproves SouthAfrica’spositionintheGlobaCl ompetitivenessIndeximprovedbysixspotsto47ouot 1f 38inthepast threeyearsT. hecountryisthesecond-mosct ompetitiveinsub-SaharanAf ricaa, fterMauritius(45th)S. outh Africamaintainsitsregionaleadershipinfinanciaml a rketst,echnologicarleadinessi,nnovationandbusiness sophistications, upportingcompetitivenessS. outhAfrica’srankingsfoer aseoaf ccesstoloanse, nhancedlocal competitionandbetteur seotfalenitntermsohf owpayreflectsproductivityhaveimprovedsignificantly. Therewerenotabledeclinesinseverailnstitutionaclategoriesi,ncludingpublictrusitnpoliticians(down11spots to109)f,avouritismindecisionsogf overnmenot fficials(down10to115a) ndreliabilityopf oliceservices(down 13to115)I.nadditionS, outhAfricascorespoorlyinlabour-employerelations(138)h, iringandfiringpractices (135a) ndflexibilityinwagedetermination(135).

2016MEDIUMTERMBUDGETPOLICYSTATEMENT 2010t,hreeaelffectivexchangreatheadsepreciatedb2y0.p9ecrentY. et themainfactorinexportgrowthisglobaldemand,which asbeen moderateA.one-percentage-poinitncreasienglobadlemandcouldaddas mucha0s.p3ercentagpeointtsomedium-termgrowth. Sofdt omesticdemandwarseflectedinthedecreasedvolumeoifmports, Sofdt omesticdemand reflectedindecreased imporvtolumes whichfelbl y3.p1ecrenitnthefirst halof tfheyeacromparedwiththe sampeeriodin2015N. otablexceptionisncludedvegetablperoductso,ils andfats,whereincreasesofbetween43and60pecrentreflectedthe effectostfhderought. Ovetrhme ediumtermi,mprovedomestidcemand shouldsupportimportgrowth,butheweakercurrencywillimithe expansionovfolumesI.mportasrexpectedtocontracitnthceurrenytear angdrowb2y.p7ecrenit2n017. Thecurrenatccoundt eficint arrowedinthesecondquartearns eetxports Narrowingcurr enat ccount deficiet xpectedtoaverage 3.9pecrenot vemr edium term increasedandthetrad eaccountrecordedasurplus,despitesome weakeningofthetermsoftrade.Thedeficitwasfundedthroughan increasieneptortfolioinvestmentm, ainlyintogovernmenbtondsa,nda risieneftoreigndirecitnvestmentO. vetrhneextthreyeearst,hceurrent accoundt eficiitesxpectedtoaverag e3.p9ecrentd, ownfromanaverage o5f .p2ecrenbt etween2013and2015T. heforecasdt oens opt rojecatny majograinistnhteermostfrade. Inflation Consumerpriceindex(CPI)inflati onbreachedtheupperlimitofthe Highepr etroal ndfood pricespushedinflationout otfargebt and 3top6ecrenttargebt andinthefirsht alof 2f 016m, ainlyasaresulot f highepr etroal ndfoodpricesC. oreinflationremainedrelativelyflaat nd withinthetargebt andI.nresponsetohigheirnflationandrisinginflation expectationst,heReserveBankhasraisedtherateawt hichiltendsto commerciablankbs0y.75percentagpeointssincJeanuar1y. Theinflationforecasht abs eenrevise downto6.4pecrenfto2r 016due tolower-than-expectedelectricityandimport-priceinflation.Afurther declineto6.p1ecrenitsexpectedin2017I.nflationisexpectedtostay withinthetargebt andin2018and forecasttoaverage9.p1ecrentper 2019E. lectricitypriceincreasesare yearovertheperiod,withfood inflationstabilisinga5t .p4ecrenitntheouteyr earsR. isinguniltabour costsh, igheirmport-priceinflationandinflationexpectationsareupside risktsothfeorecast. According to a Bureau for Econom ic Research survey, inflation Inflationexpectationshover neahr ighendotfarget banda, ffectingwage demandsandbondyields expectationshaveconsistentlyhoveredaroundthehighendotfhetarget bandoverthepastfiveyears,feedingintowagedemandsandprice increasesT. heAndrewLevywagesettlemensturveyfotrhefirsht alof f 2016showsanaveragewageincreaseof7.p7ecrentm, arginallylower than7.p8ecrenittnhfeirshtalof2f015. Figure2.4showsthaitmport-priceinflationhasbeensignificantlylower thanthenominaelffectivexchangeratedepreciationI.mporterhs avenot increasedpriceasms uchatshdeeprec pricperessureisnSouthAfrica. iationinthexchangreater,educing 16

CHAPTER2E: CONOMICOUTLOOK Figure2I.m4 port-priceinflationandnominael xchangeratedepreciation *Positivevalueshowappreciation SourceR: eserveBankS, tatsSA andnegativevalueshowdepreciation Reformsadvancingeconomictransformation SouthAfrica’psotentiaglrowthrat–ethfeastesttheconomycansustain withouitncreasinginflation–hasfallenfromabou4pt ecrenttobelow 2pecrenstince2012T. hemainobstacletsoeconomicactivityarefound SouthAfrica’spotential growthratehasfallenfrom abou4pt ecrenttobelow 2pecrent withinthdeomestiecconomyT. heyin cludienfrastructurbeottlenecksl,ow levelsofcompetitionincertainmarkets,avolatilelabourrelations environmentr,egulatoryconstraintsandredtapei,nefficienciesinstate-ownedenterprises,anduncertaintiesinthepolicyenvironment.By limitingth economy’spotentiatlogrowmorerapidlyt,heseconstraints effectivelbylockeconomitcransformation. Government’seconomicreformprogrammeisguidedbytheNDPand, ovetrheshorttermt,he9-poinpt lan nouncedinFebruary2015T. hese effortsaimtocreateamorejusstocietyandensurethatthebenefitsof transformationaresharedasbroadly aspossibleT. hesuccessofthese effortsinboostingeconomicgrowthandemploymendt ependsonhow welilnterventionasrceoordinateadndpuitntoaction. Akeypolicyfocusovetrhemediumtermistopromoteurbanplanning reformss,upportedbypublicandprivateinvestmentt,oencouragemore rapigdrowtahnidnnovatioinnSouthAfrica’lsargceities. Improvingthepolicyenvironment Policy uncertainty in any economy undermines confidence, with consequencefsoirnvestmenatndjobcreationA. ccordinglyg,overnmenits takingsteptssotrengthenpolicycertaintyinseverakleayreas. Intheminingsector t,hMe ineraalndPetroleumResourceDs evelopment AmendmenBt illw, hichwarseturnedtoParliamendtuteoproceduraalnd Stepstostrengthenpolicy certaintyinmining, immigrationand communications substantiveconcernsh, asbeename ndedbytheparliamentaryportfolio committeeC. oncernrselatedtolaackolfegislativceonsultationarbeeing addressed.TheChamberofMinesandtheDepartmentofMineral 17 Ju2n016 Ma2r016 De2c015 Se2p015 Ju2n015 Ma2r015 De2c014 Se2p014 Ju2n014 Ma2r014 De2c013 Se2p013 Ju2n013 Ma2r013 De2c012 Se2p012 Ju2n012 Ma2r012 Percentagcehang(ey-o-y) Percentagcehang(ey-o-y) Imporutnivtaluiendex(excludincgrudpeetroleum) Nominaelffectivexchangreat(erighatxis)* 25-25 20-20 15-15 10-10 5-5 00 -55

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Resourcesarenegotiatinganout-of-courtsettlementonthe“once empowereda, lwaysempowered”princi pleintheMiningCharterT. he impacotnthme iningsectowr ildlependonhowandwhenthesiessueasre resolvedr,emovinguncertaintyfromtheinvestmenet quationU. ndetrhe auspiceostfhPe resid entiaBl usinesWs orkingGroupsa,inglaepplication systemfoarlllicensesi,ncludingenvironmentaaluthorisationfsomr ining, iusndecronsideration. Immigrationreforms tospeedvisaprocessingandboostourismare underconsiderationT. heseincludealong-termmultipleentryvisathat wouldbeavailabletofrequenttravellersb, usinesps eopleandacademics, andvisasonarrivaflosromecategorieostfravellersS. inceJanuary1, 0-yearmultiple-entrybusinessvisashavebeenavailabletovisitorsfrom Acceleratingimmigration reformwouldreducethe cosotdf oingbusiness BrazilR, ussiaI,ndi andChinaA. reductehceosotdfoingbusiness. cceleratingimmigrationreformwould TheAugus2t 016Cabineltekgotlaresolvedtoimprove coordinationof broadbandspectruma llocationpolicy andrationalisestate-owned companiesinthisareaT. heinformationandcommunicationstechnology whitepaperisoutforpubli comment.Combinedpublicandprivate investmentoupgradetelecommunicationsinfrastructureisexpectedto totalR2b6illionin2016R. apidresolutionofthedisputebetweenthe IndependenCt ommunicationAs uthorityoSf outhAfricandtheMinistry ofTelecommunicationsandPostaSl ervicesontheauctioningofhigh-speedbroadbandspectrumwililmprovceertaintiynthseector. Socioeconomic impact assessment reports have begun to reduce legislativeandregulatoryduplication ,andimprovepolicydesign. Earlietrhiysearf,oerxamplet,hdee partmentosAf gricu ltureF, orestryand Fisheries,andEnvironmentalAffairsproposedtwooverlappingbills dealingwithmarinaeffairsT. haessessmenptroceshselpedtoensurteheir combinatioinntothMe arinSepatiaPllanningBill. Investinginnetworkinfrastructure Since2009,thepublicsectorhasinvestedmorethanR1.t6rillionin infrastructure.Thishasalleviatedpressureonnetworkindustriesand expandedcapacity.InlinewiththeNDP,investmentininfrastructure remainsapolicypriority.Public-sectorinfrastructureinvestmentplans totaRl 987.b4illionoverthemediumtermo, fwhichR33b4illionisin transportandlogistics,andR13b7illioninwater and sanitation. InvestmenitennergiynfrastructurteotalRs 24b3illioonvetrhpeeriod. 18 StructurarleformsinMexicoandIndia BothIndi andMexicoareimplementingstructurarleformstopromoteeconomicgrowthanddevelopmentT. he reformsaredesignedtoremovesupplybottlenecksp, romotehigheirnvestmentm, akeiet asietrodobusiness andimproveaccesstofinance. Partlyasaresultofitsreforms,Mexicoisexperiencingrisinginvestmentinnaturalgas,electricity,and telecommunicationsF. inanciarleformshavestrengthenedconsumepr rotectioni,mproved thecollectionocf redit information,andallowedmorecompetitioninthebankingsector.TheIMFestimatesthathesereformswill supporgt rowtho2f .9pecrenot vetrhemediumtermu, pfrom2.1pecrenitn2016. InIndia,economicgrowthhasrisenfrom6.6pecrent in2013to7.6pecrentin2015.Thegovernmenthas targetedreformsinmining,toallowcompetitivebiddingforminingleases;inelectricity,topermitdebt restructuringamongstateelectricitydistributioncompanies;andinagriculture,amendingcropinsuranceto benefiftarmersR. eformsalsofacilitatemoreflexiblelabourandproducmt arkets,promoteforeigninvestment andenhancefinanciailnclusionT. heIMFprojectstronggrowthinIndiaovetrhemediumterm.

CHAPTER2E: CONOMICOUTLOOK Lackofadequateelectricitysupplyhasimposedseverecostsonthe economyG. overnmenht asworkedtostabiliseEskomandincreasethe participationoifndependenpt owepr roducers(IPPs)w, hichwasinitially focusedinrenewabletechnologiesT. heIPPprogrammew, hichinvolves largeinvestmentbs ytheprivatesectorw, ilclontinuea,ndwilelxpandto includperivatienvestmenitncoaalngdas. Furtheerxpansionoeflectricitygenerationcapacitywilbl eguidedbythe IntegratedResourcPe lanandthIentegratedEnergyPlanw, hichshouldbe IPPprogrammew, hich involveslargeinvestments bytheprivatesectorw, ill continue alerttotheriskoof ver-investment. higheerlectricitypricesw, ithnegati Idleelectricitycapacitywilrlequire vceonsequencefsoerconomigcrowth. Inaddition,integratedresourceplanningshouldtakeintoaccounthe fallingcosot rfenewablesandtheirpossibleuseingeneratingbaseload electricitya,dsiscusseidtnhbeoxbelow. Eskomhascaledupitms aintenanceworkE. nergyavailabilityimproved from70pecrenitnOctobe2r015to8p1ecrenitnJun2e016T. hMe edupi andKusileplantsareexpectedtobecompletedbyMay2020and Medupai ndKusileare expectedtobefully completedby2020and 2022respectively September2022respectively.Three unitsofIngulaarealreadyin commerciaolperationa,ndthefourthwilclomeonlinienthefirshtaloff 2017. OvetrhpeastthreyeearsT, ransnet hasignificantlyincreaseditcsapacity throughinvestmenitnnewlocomotivesandraiilnfrastructureC. apacity hasgrownby26.4milliontonsinthegeneraflreighbt usiness9m, illion tonosnthexporctoallinaend7.2milliontonosnthexporitronorleine. TransneetxpectstoinvesattotaolRf 3b0illioninitns ewmulti-product pipelinew, hichiesxpectedtobecompletedin2022/23T. hepipelinewill boosctapacitby3y.b5illiolnitrepseyrear. 19 Renewabl energytrendsandtheindependenpt owepr roducepr rogramme Accordingtothe2016RenewablesGlobaSl tatusReporti,nvestmenitnrenewablegenerationhasexceeded investmentinnewfossilfuelgenerationgloballysince2014.TheUnitedNationsEnvironmentProgramme reportsthadt evelopingcountriesaccountedfo5r 5pecrenotifnvestmenitnrenewabl energyin2015D. eclining costsforenewabl energyandthemovementtowardsmodulabr uildoptionshasmadefinancingmorereadily available. SouthAfrica’sindependenpt owerproducer(IPP)programmehassuccessfullyintroducedrenewablepowerto theelectricitygrid.Ofthe6376MWofrenewablepowerprocuredtodatebytheDepartmentofEnergy, 2220MWhascomeonstream.IPPshaveattractedR194billionofinvestmentandcreatedjustunder 27000jobs.Sinceprogrammeinception,theaveragepriceperkilowatthourhasdeclinedby67.4pecrent. AccordingtotheDepartmentofEnergy’sIPPoffice,windandsolarphotovoltaicgenerationisnowcost competitivewhencomparedwithnew-buildoptionsuchasgasandcoal. ThesuccessotfheIPPprogrammecanbereplicatedinothersectorsB. etween2019and2025t,heGas-to-PowePr rogrammewilpl rocure3726MWocf apacitys, timulatingthegasindustryandassociatedinfrastructure developmentA. nothe1r000MWwilbl eaddedtotheinitial800MWthawt asoriginallyprojectedbyindustryco-generationT. heCoaBl aseloadIPPProgrammeaimsto procure2500MWoef lectricityfromcoal-firedpower stationsT. hefirsbt idwinnersa, nnouncedinOctoberw, illprovide863.3MWocfapacityinthenexftiveyears. CasestudiesinAustralia,DenmarkP, ortugaal ndtheUKhaveshownthatiitspossibleforenewablestomeet energydemand,includingbaseloadpower.Althoughwindandsolartechnologiesgenerallyprovidepower intermittently,thiscanbeovercomebyconnectinggeographicallydispersedplantstothegrid.Flexible technologiessuchasgasturbinescanbeusedtofililngapsT. heCouncifloSr cientificandIndustriaRl esearch hasimilafrindingsfoSr outhAfrica.

2016MEDIUMTERMBUDGETPOLICYSTATEMENT SouthAfrica’lsargedevelopmenftinanceorganisationasrealsoinvesting ininfrastructureandeconomicdevelopmentT. heDevelopmenBt ankof SouthernAfricdaisburserdaecordR17.b1illionduring2015/16o,wf hich R8.1billionwentomunicipalitiesO. ver25000householdsbenefited fromenergayndwatearndsanitationprojectsT. hIendustriaDl evelopment CorporationapprovedloansofR4.b9illionandR2.b9illionforblack-empoweredcompaniesandblackindustrialistsrespectivelytosupport greateprarticipationobflackpeoplietnheconomy. Developmenftinance organisationsinvestingin infrastructureand supportingblack empowerment Encouragingprivate-sectoirnvestment Expandedinvestmentbytheprivatesectorwillimproveproductive capacityandgrowtheconomyT. acklingcorruptionwildliscouragreent-seeking,lowertransactioncosts,reduceuncertainty,andpreventthe wastagoebfothpubliacndprivatreesourcesI.nitiativetshaatruendewr ay includtehfeollowing: Governmenwt orkingto promotegreatepr rivate investmenitnarangeof sectors • Easingtheregulatoryburden andmakingiteasiertoinvest. InvestSAhassetupaone-stopshoptohelpinvestorswiththe procedurersequiretdostarutapndrubnausiness. • Reducingtimespenot ncomplianceandpaperwork A. asresulot f increasedautomationattheCompaniesandIntellectualProperty Commissionin,towtakelsestshandaaytoregistefarirmT. itldeeeds arenowavailablewithinsevendaysatheDeedsOfficeA. ndthe Department of Justice has streamlined contract enforcement, introducincgourmt ediatiotnoreducleegaclosts. • Strengthening competition law . Sections of the Competition AmendmentActthatcameintoeffectearlierthisyearmakeita criminaol ffencefordirectorsorma nagersofafirmtocolludewith theicrompetitortsofixpriceoscrolludientendersT. hisshouldreduce priceasndincreasme arkeatccess. • Enhancingthenvironmenftorsmalbl usiness T. heDepartmenot f SmalBl usinesDs evelopmeniutspdatinglegislationtoimprovseupport fosrmalbl usinessesG. overnmenht atsargetedsupporttosmalflirms, andiesncouraginglargebusinessetsocontracmt oreworkfromsmall companies. Government’sapproachhasbeguntoyieldgreatepr rivateinvestmenitn severalareas–notablyinthesuccessfulIPPprogrammeI. naddition, automotiveassemblyfirmshavepledgedinvestmentsofR15.b4illion, whichwouldcreateanestimated4675jobsI.nJune2016t,heCentrefor HighPerformanceComputinglaunchedthefirstpetascalecomputing systemontheAfricancontinent.Constructionofthe64-dishMeerkat radiotelescopearrayintheKarooisduetobecompletedbyth endof 2017A. ndpublicandprivateinvestmentotallingR17billionhasbeen targetedtowards“oceanseconomy”initi ativesoverthepastwoyears, creatinagbou50t00jobsI.nvestmentssupporsthipbuildingantdrainingof marinengineerasndartisans. Complementaryeffortsupporbtothcommerciaalgriculturaendemerging Supporftocrommercial agricultureanddeveloping farmersincludesmarket diversificationinitiatives farmersE. ffortstodiversifymarket sf, orexampleh, aveboostedapple exportstoChinaby7p7ecrentT. herecentlysignedSouthernAfrican DevelopmentCommunity–EUtradeagreementimprovesaccessto Europeanmarketfsosrugare,thanoalnwd ine. 20

CHAPTER2E: CONOMICOUTLOOK Despiteasignificanrteductioninborrowingcostsovetrhelas2t y0ears, availabilityoffundingremainsanobstacletobusinessdevelopment. Governmenrtemainscommittedtoworkingwith efinanciaslectoarnd developmentfinancialinstitutionstoreducefundingconstraintsto businesesxpansionanjdocbreation. Reviewingincentiveprogrammes Governmenpt rovideasrangeodf irecstupporttobusinessF. oerxample, theClothingandTextilesCompetitivenessProgrammehashelpedto stabilisethesector.TheManufacturingCompetitivenessEnhancement Programmehaaspprovedprojectws orthabouRt 2b8illions,upportingan estimated20000jobs.TheAutomotiveProductionandDevelopment Programmheacsontributetdioncreasedexports. Givenincreasedpressureos nthefiscust,heseincentivesi,ncludingdirect transfers,taxandtariffrebatesandconcessionalfinancingarebeing reviewedT. hereviewiisntendedto assesps erformanced, eterminevalue fomr oneya,ndanalysehowthesystemaaws holesupporttsheconomy anjdocbreationT. hreeviewiesxpectetdboceompletebdOy ctobe2r017. Buildingaplatform focr ollectiveaction Topromoteafaster-growingm, oreinclusiveeconomyg, overnmenht as Governmentb, usiness, labouar ndcivislociety workingtorestore confidence strengtheneditasctiveco llaborationwithbusinesst,radeunionasndcivil societytorestoreconfidenceandreduceconstraintstogrowth.The PresidentialBusinessWorkingGroupandtheCEOInitiativeare generatintgargetedsupporftotrheconomy. InitiativesincludeaR1.b5illionfundtosupportsmallfirmswiththe abilitytoscaleupandcreatejobs a, ndaprivate-sectorprogrammeto creatm1e illioninternshiposvetarhree-yeapreriodf,ocusedonimproving thejob-readinessofyoungworkseek ersT. ocomplementheseefforts, governmenwt ilsltrengtheintasgencietshastupporstmalblusiness. Fosteringbettelrabourelations Governmenctontinuetsalkws ithbusinesasndlaboutroreducwe orkplace conflicatndprotractedstrikesA. nindependenptanehlabseenestablished tosupporwt orkonanationaml inimumwageG. overnmenht aps roposed toextendthemploymenttaxincentivaendthleearnershipallowancea,nd wilclontinuteomonitotrhiempacottfhesiencentives. Employmenttaxincentive andlearnershipallowance tobeextended 21 Improvingth easeodf oingbusinessinlargemetros TheCitiesSupporPt rogrammeisworkingwithlocagl overnmentsi nineparticipatingcitiestodevelopaction planstoimprovetheipr erformanceintheWorldBank’s2018 DoingBusinessinSouthAfricasurveyT. hecountry wasranked73ouot1f 89participatingcountriesfo2r 016d, ownfoupr lacesfromtheyeabr eforeT. herankings fo2r 017aretobepublishedattheendoOf ctobe2r 016. Theworkfocusesonthreebusinessregulatoryindicators–dealingwithconstructionpermitsg, ettingelectricity andregisteringproperty–forwhichcitieshavethegreatestresponsibility.Johannesburg,SouthAfrica’s representativeintheglobalDoingBusiness survey,isreceivingspecifictargetedsupporttoimproveits processesandrankingC. ity-leverleformscomplemennt at ionarleformsbeingimplementedbytheDepartmenot f TradeandIndustryinpartnershipwiththeNationaTl reasury.

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Conclusion TheNationaTl reasuryforecastasmode raterecoveryovetrhenextthree years,withGDPgrowth reaching2.2pecrentin2019assupply-side constraintsbecomelessbinding,theglobaleconomyrecovers,and businessandconsumecr onfidencereboundD. ecisivemeasurestospeed implementationoNf DPreformasndreducpeolicyuncertaintycansupport acceleratedandbroad-basedeconomigcrowth. 22

3 Fiscapl olicy Creatingconditionsfofrastegr rowth Texpenditurec,ontinuetsporioritisceapitailnvestmenatndstabilises ocreattehceonditionfsomr orreapidgrowthf,iscaplolicyaimtso Governmenpt roposes additionaml easuresto containbudgedt eficiat nd reducedebat ccumulation delivemar easuredconsolidationthaatvoidsaharpcontractionin nationadlebatsasharoeGf DPG. overnment’esfforttsoreducbeorrowing havebeenfrustratedbyconsistendt ownwardadjustmentstogrowthand taxrevenueS. lowinghouseholdconsumptionandfallingprivate-sector investmentreflectprofounduncertaintyaboutheglobalan domestic economicoutlookI.nthecurrenet nvironmentb, uildingconfidenceand ensuringasustainableoutlookfotrhepublicfinancesrequireadditional fiscacl onsolidation–inothewr ords, andslowthpeacoedfebatccumulation. stepstocontainthebudgedt eficit TheconsolidationmeasuresproposedinthisMTBPSarelikelytohave somdeampeningeffecotneconomiacctivityB. uotvetrhme ediumterma, furthelrososcfonfidenceandaratingds owngrade–whichcouldprompt higheirnteresrtateasndlargceapitaolutflow–rsemaingreaterrisktsothe economtyhatnhleikeleyffects offiscaclonsolidation. Accordinglyg,overnmenptroposes: 23 Inbrief • Theconsolidatedbudgedt eficifto2r 016/17isprojecteda3t .4pecrentoGf DPm, arginallyhighetrhan the2016Budgeet stimateo3f .2pecrent. • AcombinationotfhedecliningGDPgrowthrateandlowetraxbuoyancyhasreducedthein-yeatrax estimatebyR23billionT. heshortfalilsoffsetbydrawdownsonthecontingencyreserved, eclared savingsandprojectedunderspendingA. saresultt,heshortfaldl eclinestoabouRt 11.5billionl,imiting itsimpacot nthebudgebt alance. • Withoutpolicyadjustments,grosstaxrevenueisprojectedtofalsl hortofFebruaryestimatesby R36billionin2017/18andR52billionin2018/19. • TheMediumTermBudgetPolicyStatementproposesR26billioninreductionstotheexpenditure ceilingovetrhenexttwoyearsP. roposedtaxmeasuresamounttoR13billionin2017/18C. ombined withhighetraxe signalledinthe2016Budgett,otarlevenueincreasesamounttoR43billionovetrhe nexttwoyears. • Theseadjustmentsresulitnent ationadl ebsttabilisinga4t 7.9pecrenotGf DPin2019/20.

2016MEDIUMTERMBUDGETPOLICYSTATEMENT • ReductionstotheexpenditureceilingofR1b0illionin2017/18and R1b6illioni2n018/19. • Taxmeasuretsoraiseanadditional R1b3illionin2017/18C. ombined withtheproposalasnnouncedinthe2016Budgett,hibs ringtshetotal increasenextyeartoR28billion.Governmentwillalsopropose measuretsoraisaedditionarlevenuoeRf 15billioni2n018/19. Thesemeasuresareexpectedtoredu cetheconsolidatedbudgedt eficit Consolidatedbudgedt eficit expectedtonarrowfrom 3.4pecrentto2.5pecrent oGf DPinouteyrear from3.4pecrenot Gf DPinthecurrenyt eatro2.p5ecrenitn2019/20. Netnationaldebtisexpectedtostabiliseat47.9pecrentofGDPin 2019/20,againstaFebruaryprojectionof46.p2ecrentofGDPin 2017/18. Government will mitigate fiscal risk by protecting the expenditureceilinga, ndlimitingthelikelihoodthact ontingenltiabilities willmaterialise.Adetailedfiscalriskstatementispublishedasan annexurteothiMs TBPS. Fiscalpolicy,however,cannotactinisolation.PersistentlylowGDP growthreflectbs othglobaelconomicweaknesasndstructuraclonstraints inthedomesticeconomy,asoutlinedinChapte2r.Achievingfaster, broad-basedeconomicgrowthrequiresactiontobuildconfidenceand encourageprivate-sectorinvestment, alongsiderapidimplementationof structurarleformisdentifiedinthNe ationaDl evelopmenPt lanO. vetrime, fastereconomicgrowthwillgenerate therevenuenecessaryforfuture expansionofpublicservices.ImprovingGDPgrowthwillalsoallow governmenttroebuildfiscaslpace. Stabilisingdebat nden couraginginvestment TheOctober2016 IMFFiscalMonitor notesthatglobaldebtof Reducingglobadl ebt overhanginalow-growth worldisamajocrhallenge governmentsh,ouseholdasndnon-financiaflirmisasatnall-timheighI.n manydevelopedeconomies,banksarehighlyleveraged,whilerising publicdebthaslimitedspaceforfiscalstimulus.Reducingthedebt overhanigwan orldolfowegrrowtihmas ajocrhallenge. Figure3.1GrossdebotSf outhAfricangovernmenth, ouseholds andnon-financiacl orporations2, 0028-015 SourceB: ankfoIrnternationaSl ettlements 24 2015 2014 2013 2012 2011 2010 2009 2008 PecrenotGf DP GovernmentNon-financiaclorporationsHouseholds 120 105 90 75 60 45 30 15 0

CHAPTER3F: ISCALPOLICY InSouthAfricag,overnmenhtabsorrowedtomaintaincoreconomiacnd sociapl rogrammesa,ndrespondtonewspendingpressuresS. tate-owned companieshaveborrowedtofundcapitailnvestmentC. orporatedebits relativelyloww, hilecashbalancesarehighbyhistoricasltandardsT. he Corporatedebitsloww, hile cashbalancesarehigh fiscaclhallengeitsostabilisegove rnment’ds ebt-to-GDPratioandcreate anenvironmentthaet ncouragesprivateinvestmentB. ecausegovernment debittshereferencepricefotrheresottfheconomyl,owegr overnment bondyieldws ilrleducbeorrowingcostascrostsheconomy. SouthAfrica’csurrenctircumstancersa isethpeossibilityoalfow-growth Slowinggrowthmakesit difficulttostabilisedebt-to-GDPratio trapI.nthisscenariog, overnmentf,acingtheneedtostabilisenational debt,introducesconsolidationmeas uresthatultimatelyproveself-defeatingA.tightefriscapl ositionreduceGs DPgrowthl,eadingtolower revenueandhigherdeficitsT. hiscreatesadilemmaA. ggressivefiscal consolidationmaybolsteirnvestoarndbusinescsonfidenceb,uwt illlikely addtothedifficultiesfacingtheeconomyT. akingnoremediaal ction, however,mayresultinaratingsdowngradeh, igherinterestratesand capitaol utflowsw, hichcouldprecipitatearecessionI.neithesrcenarioa, slowingeconomymakesitmoredifficultostabilisethedebt-to-GDP ratio. Ameasuredconsolidation Fiscaplolicyaimtsodeliveamr easuredconsolidationthaatvoidsaharp contractioninexpenditurec,ontinuestoprioritisecapitailnvestmenta,nd stabilisensationadlebatsasharoeGf DPT. hiws illlaythfeoundationfor morreapiedconomigcrowthinyearashead. ThMe TBPSproposalasrdeesignedtonarrowthdeeficiotvetrhme edium MTBPSproposalsdesigned tonarrowdeficiot ver mediumtermwhileallowing forreaslpendinggrowth termw, hileallowingforeael xpend ituregrowthA. sashareofGDP, spending remains unchanged, while tax revenue increases by 1.p8ercentagepointsT. heconsolidationwilsltabilisethewagebilal sa shareofgovernmentspending.Thecurrentbalance–thedifference betweencurrentrevenueandspendingoncompensation,goodsand servicesi,nteresta,ndtransferasndsubsidie–smovefsurtheirntosurplus overthemediumterm.Overthesameperiod,thecapitalfinancing requiremenwt ilrlemainbroadlyunchangedaatbou3t .p7ecrenotGf DP, financedinparbty thceurrensturplus. Table3A.1nnouncedconsolidationmeasures2, 015/16–2018/19 Rbillion 2015/16 2016/17 2017/18 2018/19 2015BudgeRt eview Expenditurereductions Revenueincreases 15 – 10 17 – – – – 2016BudgeRt eview Expenditurereductions Revenueincreases – 18 – – 10 15 15 15 2016MTBPS Expenditurereductions Revenueincreases – – – – 10 13 16 – Total Expenditurereductions Revenueincreases 15 18 10 17 20 28 31 15 Total 33 27 48 46 SourceN: ationaTl reasury 25

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Table3C.2onsolidatedcurrenat ndcapitabl alances2, 015/16–2019/20 -176.0 -186.5 -199.5 SourceN: ationaTl reasury Themainbudgedt eficitw, hichisequivalenttogovernment’sborrowing requirementi,settostabilisea3t .p2ecrenotGf DPovetrhenextthree yearsT. hedeficiet xcludinginterest payments–knownastheprimary balance–continuestonarrow.Nextyearaprimarysurpluswillbe achievede, nsuringthatgovernmentcanmeetitsnon-interestspending commitmentswithouat dditionabl orrowingR. eaml ainbudgest pending growthwillincreasefromalowof0.1pecrentinthecurrentyearto 2.p6ecrenitn2019/20F. urthedr etailos nthemainbudgeatrecontained itnhteechnicaalnnexure. Figure3.2Mainbudgept rimarybalance,2* 004/05–2019/20 Non-interesstpending *Excludesfinanciatlransactions SourceN: ationaTl reasury Medium-termconsiderations Ovetrhepasftouyr earsf,iscapl olicyhaasdjustedtocontainthebudget deficitandlimitdebtaccumulation.In2012,governmentintroduced expenditurceeilingsT. h2e015and2016budgetseotucatombinationof Loweconomicgrowthrates havedelayedfiscal consolidation spendingreductionsandta xincreasesT. heceilingshavebeeneffective: spendinghasremainedstableasashareoGf DPA. tthesametimet,ax revenuehasgrownasapercentageofGDP,reflectingbothpolicy measureasnhdightaxbuoyancyN. everthelessl,oweconomigcrowthrates havletdroevenusehortfallsd,elayintghceonsolidation. 26 2019/20 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10 2008/09 2007/08 2006/07 2005/06 2004/05 PecrenotGf DP 27 26 25 24 23 Revenue 22 21 2015/16 Rbillion/PercentageoGf DPOutcome 2016/17 Estimate 2017/182018/192019/20 Medium-termestimates Currenbt alance7.9 0.3 0.0% Capitabl orrowingrequirement-164.3--4.0% 23.7 0.2% 168.6 -3.8% 49.573.5 0.5%1.0%1.3% -3.7%-3.7%-3.6% Financiatlransactions101.37 Contingencyreserve–– 11.2 6.0 8.87.0 10.020.0 Budgebt alance-152.2 -3.7% -150.5--3.4% 147.1-138.2-139.0 -3.1%-2.7%-2.5%

CHAPTER3F: ISCALPOLICY Growthandrevenueperformance ThNe ationaTl reasury’Gs DPgrowthprojectionhsavbeeenrevisedown Outer-yeaGr DPforecasts havebeenoverlyoptimistic repeatedlya,showninTabl3e.3O. u ter-yeafrorecast–sonwhichfiscal consolidatiodnependh–savperovenoverloyptimistic. Table3R.3eaGl DPgrowthprojections2, 015/16–2019/20 2015/16 2016/17 2017/18 2018/19 2019/20 2014Budget 2014MTBPS 2015Budget 2015MTBPS 2016Budget Revised – – 3.1% 3.0% 2.7% 1.9% 1.3% – – – 3.3% 2.6% 2.0% 1.2% 0.9% 0.6% 3.5% 2.9% 2.6% 2.1% 1.2% 1.0% – – – – 2.3% 2.8% 2.5% 2.1% SourceN: ationaTl reasury In-yeafrorecastshavealsoprovenoptimisticb, udt ownwardadjustments togrowthhavenottranslatedintosignificanrtevenueshortfallsbecause taxbuoyancyhasremainedhighI.nthecurrenyt eart,axbuoyancyhas declined. Grostsaxrevenueipsrojectedtofalslhorot2f016Budgeptrojectionbsy R2b3illioninthecurrenyt earR, 3b6illionin2017/18a,ndR5b2illionin 2018/19T. hisshortfalrleflects: • Asharpdeclineinyear-on-yearevenuegrowthin2016/17F. orthe firsht alfoftheyearr,evenuegrewby7.p4ecrenat gainsat ninitial projectiono1f0. p1er centT. hfeorecasatssume rasecoveryinrevenue growthinthseecondhalfb,utth2e016 thoeuteyrearostfhferamework. /17shortfalwl ilfleedthroughto • DownwardrevisiontsoeconomicgrowthandthetaxbasesR. elatively smallrevisionstonominalGDPobscuresignificantchangesinits compositionA. saresulot fthesech angest,helatesftorecasst hows significanrteductionsinmajotraxbasesi,ncludingwagesh, ousehold consumptioannidmports. TheadditionatlaxmeasuresproposedreducetheshortfaltloR2b3illion nexyt eara,ndR3b8illionin2018/19C. omparedwiththepasftiveyears, thme edium-termrevenuoeutlooakssumelsowebruoyancies. Changes to the management of government’s foreign-currency investmentswillgeneraterevenuethatreducesthebudgetbalanceby Taxmeasuresreduce shortfatlloR23billionin 2017/18andR38billionin 2018/19 R3b6illionoverthemediumterm. technicaalnnexure. Thesechangesareexplainedinthe 27 Highrevenuebuoyancyundelrow-growthconditions Revenuebuoyancydescribestherelationshipbetweentaxcollectionandeconomicgrowth. DespitelowGDPgrowthratest,axbuoyancyhasaveragedabou1t .2ovetrhepasftiveyearsI.nothewr ords, forevery1percenitncreaseinnominaGl DPt,axhasgrownby1.2pecrentS. uchhighbuoyancylevelsare typicallyassociatedwithperiodsosf trongeconomicgrowthR. evenuecollectionwiltlop26pecrenot Gf DPin thecurrenytea–ralevellasot bservedduringthemid-2000s. Therelativelystronggrowthintaxesispartlyexplainedbyeconomicfactorsh: ighwagesettlements(particularly inthepublicsector),robusthouseholdconsumption,assetpriceinflation,exchangeratedepreciation,and resiliendt emandfoirmportsT. herehavealsobeensignificanttaxpolicychangesl:essgenerousrelieffotrhe effectsoifnflation(fiscadl rag)h, ikesinpersonailncometaxratesa, ndstronggrowthinexciseandfuellevies.

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Expenditure Governmenht asuccessfullymaintainedthexpenditureceilingovetrhe pasftouyr earsS. pendingpressuresi,ncludingthecarry-througheffecot f increasedsubsidiesforuniversitystudents,havebeenaccommodated throughthecontingencyreserveandreallocationsfromwithinbaselines. Indicativeallocationsinthethirdyearoftheframeworkgrowat 2.p3ecrenatbovienflationr,eflectingthiententiontoalignspendingwith long-termeconomigcrowth. Shiftingthecompositionofspendingtowardscapitailnvestmenwt ould benefitth economy.Doingso,however,requiresgreaterrestraintin compensationspendingC. onstrainedbudgetshavestabilisedheadcounts acrossthepublicsector.Infunctionssuchashealth,educationand policingh, oweverw, agehs avegrownamt orethanp2ecrenpt eyr eairn reatlerms. Governmenht as successfullymaintainedthe expenditureceilingfofrour consecutiveyears Aligningnewwage agreementtoinflationwill easepressureon headcounts Medium-termprojectionshowthattostaywithinbudgetsovetrhenext threeyearsa, lnl ationadl epartmentswilhl avetomoderateheadcounts. Thiswillbeachievedthroughattrit ion,asstaffwhoretireorleave employmenwt ilnl obt ereplacedI.tfhewageagreementobenegotiated in2017/18isalignedwithinflation,however,agreatershareof expenditurecanbeallocatedt othesrpendingprioritiesa,ndpressureon nationahleadcountws ilblreeduced. Figure3.4Reagl rowthomf ainbudget non-interesst pending* Figure3.3Nationaal ndprovinciael mployee headcount E* xcludingpaymentsfofrinancia SourceN: ationaTl reasury al ssetsD. eflatedusingCPI SourceN: ationaTl reasury(PERSAL) 28 2019/20 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10 2008/09 2007/08 2006/07 2005/06 2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10 2008/09 2007/08 2006/07 Millions Pecrenrteaglrowth Financingsociailnfrastructure Sustaininghighlevelsoifnvestmenrtequiresthestatetotacklesomeevidenpt roblemsinpublicinfrastructure managementi,ncludinglackocfoordinationa, ndweakplanningandimplementationcapacity. Governmentisconsideringtheintroductionofafinancingfacilityforsociailnfrastructure.Itwouldfundlarge infrastructureprojectss, uchashospitalst,hartequirenationabl udgeat llocationsT. hefacilitywouldfocuson projectswithgoodsociaoler conomicreturnsb, ackedbyindependenpt rojecat ppraisalIw.t ouldinclude: • Atechnicaslupporut nitw, ithexpertisetoappraiser,ecommendandmonitolrargeprojects. • Afinancingfacilitythaat llocatesresourcestoprojectsondevelopmenftinanceprinciplesT. hiswouldbeon government’sbalancesheeat ndfullyintegratedintothenationabl udgestystem. • Theinvolvemenotcfoncessionallenderstoprovidefundsandtechnical ssistance. Thisprocesswiall lsoclarifytherequirementsfopr ublic-privateandpublic-publicpartnerships. 10 8 6 4 2 0 10.7 10.1 9.7 8.9 8.4 4.2 3.2 2.6 2.2 2.0 1.7 2.0 1.7 0.1 1.3 1.2 1.1 1.0 0.9

CHAPTER3F: ISCALPOLICY Thefiscaflramework Tabl3e.4summarisetshceonsolidatedfiscaflrameworkT. hceonsolidated deficitw, hichtakesintoaccounthebudgebt alancesofsociasl ecurity Consolidate deficit projectedtonarrowto 2.5pecrenotGf DPover mediumterm fundsp, ublicentitieasndprovincesi,s ovetrhme ediumterm. Revenuestimateasrebelow2016Budg projectedtonarrowto2.p5ecrent ept rojectionsL. owerreceiptisn thecurrenyt eawr ilbl epartiallyoffsebt yhigher-than-anticipatedincome fromfinanciatlransactionsr,eflectingpremiumos ninflation-linkedbonds angdovernment’bsond-switcphrogramme. Thseociaslecurityfundasndpublic fotrhecurrenyt earw, hichoffsetsthe entitiehsavcaeombinedcashsurplus nationabl udgedt eficitC. ompared withthe2016Budgeet s timatest,hecombinedsurplusosfociaslecurity fundhsabseenrevisedownin2016/17andovetrhtewofollowingyears. Thismainlyreflectslowerinterestearningsontheinvestmentsofthe UnemploymentInsuranceFundD. espitethist,hesocialsecurityfunds continuteogeneratleargceashsurplusesi,ncreasingfromR19.b3illionin thceurrenyteatrRo 26.b5illioni2n019/20. PublicentitieshavecombineddeficitsofR3.2billionfor2016/17and R6.1billionfo2r017/18T. h ilsargelythreesulotofperatingdeficitosn thelong-distancepassengerservicesofthePassengerRailAgencyof SouthAfrica,andlowertollrevenuescollectedbytheSouthAfrican NationaRl oadsAgencyLimited(SANRAL)P. ublicentitiesmovetoa cashsurpluosRf 3.9billionby2019/20l,argelyonthestrengthohf igher revenuegseneratebdtyhWe ateSrerviceTs radinEg ntity. Publicentitiesmovefroma combineddeficiitn2016/17 toacashsurplusin2019/20 21 013/14–2019/20 Table3C.4onsolidatedfiscaflramework, 164.6 1161.0 1240.4 1331.4 1434.8 1F. urthedr etailsotfhefiscaflrameworkcanbefoundinthetechnicaal nnexure 2I.ncludingspecial ppropriations SourceN: ationaTl reasury Thecontingencyreserveshavebeenreducedtoaccommodatethecarry-througheffecotifncreaseduniversitysubsidiesa,ndtonarrowthedeficit. ProjectedreservesofR1b0illionandR15billioninthenextwoyears havebeencutoRb6illionandR1b0illionrespectivelyT. he2019/20 contingencryeservsetandasRt 2b0illion. 29 2013/142014/152015/16 Rbillion/PercentageoGf DPOutcome 2016/17 BudgeRtevised 2017/182018/192019/20 Medium-termestimates Mainbudget Revenue88976.54.51075.2116 Expenditure1047.8 131.91244.6131 owf hich Non-interesat llocations 2 941061.76.11115.81 Debt-servicecosts1011.214.8128.8147 Contingencyreserve–– –6.0 2.01143.7124 8.31308.7141 .7147.7163 –6.0 9.11359.91482.4 0.01522.21651.9 .6180.8197.2 10.020.0 Mainbudgebt alance-160.4-166.4-169.4-15 -4.4%-4.3%-4.1% Primarybalance-59.2-51.6-40.6--1.6%-1.3%-1.0% 6.3-165.0 -3.6%-3.8% 8.6-17.32 -0.2%-0.4% -161.0-162.3-169.6 -3.4%-3.2%-3.1% .718.527.6 0.1%0.4%0.5% Budgebt alancesosf ocial282.49.717.217.4 securityfundsp, ublicentitiesand provinces 14.513.9 24.130.6 Consolidatedbudgebt alance-135.7-137.5-152.2 -3.7%-3.6%-3.7% -139.0-150.5 -3.2%-3.4% -147.1-138.2-139.0 -3.1%-2.7%-2.5%

2016MEDIUMTERMBUDGETPOLICYSTATEMENT SouthernAfricanCustomsUnion(SACU)transferprojectionshave increasedoverthemediumterm,largelyduetoupwardrevisionsin customsandexcisedutiesA. djustmentstoestimatesoGf DPp, opulation andintra-SACUtradealsocontribute Africa’psaymenttsiotSsACUpartners. toanoverallincreaseinSouth Nationadl ebot utlook Thefiscapl olicyproposalsareexpect edtostabiliseneltoandeb–tthe Neltoandebet xpectedto stabilisea4t 7.9pecrenot f GDPin2019/20 differencebetweengrossdebtandgovernment’scashbalances–at 47.p9ecrenotGf DPin2019/20T. he2016 BudgeRt eview projectedthat nedt ebwt ouldstabilisein2017/18a4t 6.p2ecrentT. heupwardrevision otfhedebt-to-GDPratioreflectslo ancdurrencdyepreciation. wenr ominaGl DPh, ighebr orrowing Figure3.5Nationagl rossandnedt ebot utlook2, 007/08–2019/20 Groslsoadnebt SourceN: ationaTl reasury Managingriskstothefiscasl trategy Macroeconomicb, udgeet xecutionandpolicyrisks Themainrisktodebtstabilisationisslowereconomicgrowthandan associatedeclinientaxrevenueT. hfeiscarliskstatemenptublishedinthe MTBPSconsidersthreelong-termriskscenariosT. hefirset nvisagesa recessionin2017/18f,ollowedbyaperiodopf rotractedlowegr rowthI.n Mainrisktodebt stabilisationisloweGr DP growthandassociated declineintaxrevenue thesecondg, rowthismarginallylowe trhanthebaselineforecastE. ither casewouldrequirheighetraxeasndreducedspendingtostabilisdeebtI.n thethirdscenarioe,xportsrespondstronglytotheweakeerxchangerate, andelectricitysupplycontinuetsoimprover,esultinginafasterrecovery. Inthicsased,ebsttabilisationwoulbdaeccelerated. Therearemacroeconomic,budgetexec utionandpolicyriskstothe Loweirnflationoutlook relievespressureon inflation-linkedexpenditure expenditurceeilingT. hienflationoutlookhabseenrevisedownsinctehe Februarybudgetr,elievingpressureoninflation-linkedexpendituresuch asthewagebillT. hedepreciationin however,islikelytoraisethecost th exchangevalueoftherand, sofforeigncurr ency-denominated 30 2019/20 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10 2008/09 2007/08 PecrenotGf DP 55 50Neltoadnebt 45 40 35 30 25 20

CHAPTER3F: ISCALPOLICY purchasesi,ncludingfuelm, edicinesa, ndtheoperatingcostsofSouth Africa’s foreign missions. Government has responded to these developmentsbyreallocatingsomefundsandabsorbingtheremaining costws ithienxistingbudgetsD. etailasrperovideidCn hapte4r. Budgeetxecutionriskrselatperimarilytothwe agbeillM. osdtepartments aroentracktoremainwithinthceompensationceilingsseotuitnth2e016 Budget.Discussionsare underwaywithsomedepartmentsthatface significanwt agperessuretsoensurtehatthceompensationceilingrsemain inplaceW. hilethesepressureswillnotaffectheoverallexpenditure ceilingt,hemy asyhiftthceompositioonefxpenditure. Lookingaheadt,heNationaTl reasuryiostfheviewthatthecurrenltevel ofspendingissustainableifeconomicgrowthreturnstoitshistoric averageop3f ecrentH. oweveri,gf rowthremainsbelowp2ecrenot ver thelongtermas,tabledebpt athwilbl edifficulttosustainatthecurrent levelosefxpendituree,veinnfnoewpoliciynitiativeasrteaken. State-ownedcompanies Severasltate-ownedcompaniecsouldposerisktsothepublicfinancesI.n particular,governmentiscloselymonitoringSouthAfricanAirways SAAS, ANRALE, skomand thePosOt fficearebeing closelymonitoredto mitigaterisksthamt ayarise (SAA)t,hSe outhAfricanPosOt ffi c(eSAPO)S, ANRALandEskomw, ith theaimofstabilisingtheseentitiesandmitigatinganyrisksthatmay materialiseK. eayctiontshahtavbeeentakenincludtehfeollowing: • InSeptembe2r 016an, ewf,ull-strengthboardwaasppointedaSt AA. TheBoardhasbeentaskedwithreturningtheairlinetofinancial sustainability,andisrequiredtofillvacantexecutivemanagement positions. • WithanewboardandchiefexecutiveS, APOhasraisedfundingto repaycreditorsandlaunchitsturnaroundstrategyw, hichincludesan agreemenwt ithlaboutroreductehleikelihooodsftrikes. • ThenewtollingdispensationhasbeenimplementedaSt ANRALand legaal ctionisbeingtakenagains ut serswithoverdueaccountsT. he agency’se-tolcl ollectionsandauctionsarecloselymonitoredagainst projections. • ThreecapitalisationoEf skomin2015/16hassignificantlyimprovedits liquiditayndprofitability. Inadditiontostabilisationmeasuresp, rogressisbeingmadeonseveral reforms.Governmentistakingstepstorationaliseseveralhousing development finance institutions, as well as entities in the telecommunicationssector.Advisorswillbeappointedtoprovide technicaal ssistanceasgovernmenct onsidersthepossiblerealignmenot f itsairlineshareholdingsT. heinter-ministeriacl ommitteeresponsiblefor overseeingtheimplementationotfhereformhs aaspprovedtheprinciples thatwillguidecollaborationbetweenstate-ownedcompaniesandthe privatseectotroaccelerattehdeeliveroynfewinfrastructurperojects. FollowingitsJuly2016lekgotla,Cabinetannouncedthedecisionto establishaPresidentialState-OwnedCompaniesCoordinatingCouncil. Thecounciwl ilpl layamonitoringandcoordinatingroleT. hestatutory responsibilitieoscfompanyboardasndexecutiveauthoritieasseot uitn Stepsbeingtakento rationalisestate-owned housingand telecommunicationsentities Responsibilitiesosftate-ownedcompanyboardsand executiveauthoritiesremain unchanged 31

2016MEDIUMTERMBUDGETPOLICYSTATEMENT theCompaniesAc(t2008)andPublicFinanceManagemenAt c(t1999) remainunchanged. Ovetrhme ediumterma,nyrequestfsofriscaslupporwt ilblienformedby thperinciplesseotuittnh2e015 BudgeRt eview : • Interventiontosupporsttate-ownedcompaniems usbtceonsistenwt ith sustainablpeublifcinances. • Capitalisatiocnannohtavaenimpacotnthbeudgedteficit. • Entitiesreceivingsupporat rerequiredtodemonstratesoundbusiness plansi,mprovgeovernancaendad dresosperationaelfficiencies. Conclusion SouthAfrica’ms ajocrhallengeremainlsoweconomicgrowthT. hefiscal policyframeworkwilhlelptoreducienteresrtateasndimprovceonditions foirnvestmentF. iscapl olicyh, oweverc,annoatcitnisolationA. chieving faster,broad-basedeconomicgrowthrequiresgovernmenttorapidly implemensttructurarleformisdentifiedinthNe ationaDl evelopmenPt lan, andremovceonstrainttsogrowthO. vetrimef,asteerconomigcrowthwill generattehrevenuneecessaryfofruturexpansionopfubliscervices. Fiscapl olicyframeworkwill helptoreduceinteresrtates andcreateconditionsfor investment 32

4 Expenditureprioritiesand divisionorfevenue Budgept rioritiesandfiscarlestraint Gchallenge seot uitnChapters2and3T. heyincludeproposed overnment’smedium-termspendingplanstakeintoaccountthe Non-intereset xpenditureto growa1t .2pecrenitnreal termsovetrhemediumterm downwardrevisionineconomicgrowthandfiscalpolicy reductionsinthe xpenditureceilingofR1b0illionin2017/18and R1b6illionin2018/19.Withinthisframework,the201B7 udgetwill sustainspendingoncoreprioritiesandshifet xistingresourcestocritical needs.Non-interestexpenditurewillgrowbyanannualaverageof 1.p2ecrenitnreatlermsoverthemedium-termexpenditureframework (MTEF)period,fromR1.2t5rillionin2017/18toR1.45trillionin 2019/20. Mosot tfhespendinggrowthwilbl edirectedtowardscoreprogrammes Spendinggrowthfocusedin coreprogrammesuchas sociaslervicesand infrastructure suchassocialservicesandinfra Allocationstopost-schooleducati growingelementofthebudget.Univ structuretoboosteconomicgrowth. onandtrainingwillbethefastest-ersitysubsidieswillgrowatan annuaalveragreatoe1f0.p9ecrenatndallocationtsothNe ationaSltudent FinancialAidScheme(NSFAS)at18.p5ecrent,providingsupporto underfundeduniversitystudentsP. ubliwc orkpsrogrammetshactontribute directlytoemploymenwt ilclontinuetogrowrapidlyG. ranttshastupport peoplelivingwithHIV/AIDSwillin creasebyanannualaverageof 33 Inbrief • Givenlower-than-projectedeconomicgrowthandrevenuecollectiong, overnmenpt roposesreductions tothespendingceilingoRf 10billionin2017/18andR16billionin2018/19. • Overthemediumterms, pendingoncoresociaal ndeconomicprioritieswilbl esustainedI.nsome casesf,undswibll ereallocatedtoensureprioritiesaremeitnresponsetorisingbudgetarypressures. • GovernmentproposesanadditionalR17.6billiontopost-schooleducationandtraininginthe 2017BudgetT. otaal llocationstotheseinstitutionsoverthemediumtermgrowa1t 1pecrenet ach year. • Furthemr oderationinemploymenltevelswillberequiredacrossgovernmenat scompensationcrowds oustpendingonessentiaitlemsinbudgebt aselines.

2016MEDIUMTERMBUDGETPOLICYSTATEMENT 13.p6ecrenet achyearG. reateremphasiswilbl eplacedonimproving spendinqgualitayndimplementincgost-containmenmt easures. Risingpressureonbudgets Spendinpgressureasrme ountinagcrostshpeublifcinances: Spendingpressuresinclude risinghealthcaresalaries, andfundingtoexpandand maintainprovinciarloads • The2015public-sectorwagesettlementcontinuestolimitthe availabilitoyffundfsocrruciaplubliscervices. Inthehealthsectorh, ighesralariesr,isingutilisationosfervicesand higheirmporptricefsomr edicineasrsetraininbgudgets. • Thelocaelquitablesharew, hichfu ndfsreebasicelectricityandwater • fotrhpeoorim,s ortehinlsytretcheadustilitpyriceosutpacienflation. Congestionigs rowingonthenationarloadnetworkandthecondition omf anyprovinciarloadisdseterioratingb,uttherieusncertaintyabout thfeundingmodefloerxpansioanndmaintenance. • • Abs asicsociailnfrastructureiesx connectioncostasrreising. tendedfurtheirntoruraalreasu, nit • Thedepreciationotfhexchangeratewilml akeimt orexpensiveto runSouthAfrica’isnternationaml issions. Additionaflundingrequirementisncludhaeighearllocationtothe national Childsupporgt ranits increasedbyR10toR360 tokeeppacewithinflation schoonl utritionprogrammegrant tooffsettherisingpriceofoodT. he valuoetfhcehildsupporgtraniatslsoraisedbyR10toR360tokeepace withinflationA. nadditionaRl 17.b6illionins eededfohr igheerducation, whichisdiscussedinthesectiononpost-schooel ducationandtraining below. Risingcompensationcostshaveputacutepressureongovernment departmentsO. vetrhpeasytearC, abinehtaisntroducedstricltimitosnthe compensationbudgetsandassociatedplanningofnationadl epartments. Similamr easuresareundewr ayinprovinciagl overnmentsD. epartments nowsubmita,ps arottfheibr udgedt ocumentsc,leapr lantsharteconcile compensatiocneilingws itheadcounmt anagemenatnrdecruitment. Strongerbudgetcontrolhasstabilisedheadcounts.However,further moderationinemploymenltevelswilbl erequiredacrossgovernmenitn theyearsaheadw, ithmuchotfhisreductionachievedthroughattrition. Thecurrentpublic-sectorwageagreementexpiresinMarc2h018.If Headcountshavestabilised, bufturthemr oderation required governmentandpublic-sectorworker sareabletoreachabalanced agreementonwagesandproductivity,compensationpressurescould moderatebeginninginApri2l018T. hiws ouldallowdepartmenttsoplan foradditionalstaffandmakeresourcesavailabletofundnewpolicy priorities. Findingresourceswithinbudgets Tofundcriticalrequirementsandstaywithinthereducedexpenditure ceilingg, overnmenwt ilhl avetomakeavailableR16.b7illionin2017/18 andR23.b2illionin2018/19fromexistingbudgetsA.drawdownonthe contingencyreservwe ilclontributteothesreequirementsa,nndaumbeorf provisionaalllocationsmadeinthepreviousbudgewt ilbl erescindedA. Drawdownoncontingency reservewicllontributeto resourcemobilisation portionoftheresourcestosupport elsewherferomwithitnhpeost universitystudentswillbefound -schooelducationsystem. 34

CHAPTER4E: XPENDITUREPRIORI TIESANDDIVISIONOFREVENUE Reductionstobaselineswilml akeR18.b7illionavailableoverthenext threeyearsG. overnmenpt roposestoreducetheoperatingbudgetsoaf ll nationadlepartmentbsy1.p1ecrentT. ransfertsosompeubliecntitietshat receivemorethanR300millionpeyreafrromthebudgeat realsotobe cutc,ontributingR5.b6illionovetrhemediumtermR. eductionstolarge conditionagl ranttsoprovinceasndlocagl overnmentasrealsoproposed, witdhetailpsrovidedinthteechnicaalnnexure. Reductionstobaselines makeR18.7billionavailable ovemr ediumterm Table4B.1aselinereductions tosuppornt ewpriorities SourceN: ationaTl reasury Improvingthequalityosf pending Inanenvironmentofsloweconomicgrowthandlimitedresources, governmenitcsommittedtoreducingwastseothastpendingproducetshe intendedresults.Overthenextthreeyears,thelegalandregulatory frameworkwillbestrengthenedtoimprovetherelationshipbetween expendituraendoutcomesT. hessetepsw, hichbuildonmeasuretsakenin recenytearsw, ililncludneewlegislatioanndinstructionotes. Governmenttoimprove relationshipbetween spendingandoutcomes Procuremenrteforms TheOfficeoftheChiefProcuremen tOfficer(OCPO)isworkingto improvsependingefficiencaynedliminatoepportunitiefsocrorruption. APublicProcuremenBt ilwl ilbl econsideredbyCabinebt eforeApril 2017T. haeimotfhbeililtsoconsolidattehleegaalndpolicyframework forsupplychainmanagement.Itwillestablishanapexprocurement authorityatshgeuardianosfection217otfhCe onstitutionw, hichrequires publicprocurementtobefaire,quitablet,ransparentc,ompetitiveandcost effectiveT. hebilwl ilal lsoempowertheChiefProcuremenOt fficerto conducltifestylaeuditasnrdeviewtransactionascrostshpeubliscector. DrafPt ublicProcurement BiltlobecompletebyMarch 2017 ThderafPt referentiaPl rocuremenRt egu lationasrbeeingrevisedtoensure thaatlteas3t 0pecrenot pf ublicprocuremenitsreservedfodr esignated groupsi,ncludingsmalal ndmediumenterprisesc, ooperativesa, ndrural andtownshipenterprises.Thisisaninterimmeasurewhilethenew procuremenbtillw, hichassimilaprrovisionsif,sinalised. Ovetrhenexyt earp, ublicprocuremen stystemws ilbl emodernisedw, ith greateremphasisondigitisation.Manymanualprocesseswillbe automatedh,elpintgsoimplifayndspeedupsupplcyhainmanagement. Governmenitsettoexpandthescopeotfransversacl ontractsovetrhe nexthreeyearsT. hesecontractsallowmultipleorgansofstatetobuy goodasndserviceasctompetitivpere-negotiatedpricesr,educingcostasnd administrativerequirementsT. herearenow50suchcontractscovering 20300itemswithanestimatedvalueofR3b7illion.Thecontracts Scopeotfransversal contractingtoexpandover nextthreeyears 35 2017/182018/192019/20 Rmillion Total Nationadl epartments(1.1%reduction158016161821 inoperatingbudgets) Transferstopublicentities285012401539 Largeconditionagl rants20472166235 Provinciael quitableshares505029558 5017 5629 6448 1587 Total6977551615318680

2016MEDIUMTERMBUDGETPOLICYSTATEMENT currentlybeingnegotiatedwilclovegr oodasndservicesuchaps roperty andleasing,healthtechnology,medicaldevicesandpharmaceuticals, bankingservices,informationandcommunicationstechnology,and vehiclesS. avingosRf 40m0 illionpeyr eaarrexpectedfromcentralised procuremenottfelecommunicationsservices. Monitoringandcontrollingcosts Governmentintroducedcost-contain mentmeasuresinDecembe2r013. Spendingonconsultants decreasedby12.6pecrent since2012/13 Treasuryinstructionws eriessuedtoguidsependingonconsultantst,ravel, catering,entertainmentandvenue hire.Thesemeasures,linkedwith procuremenrteformsandbudgerteductionsintroducedduringthesame periodh, avesucceededincurtailingspendingo non-essentiagl oodasnd servicesI.nreatlermss,pendingontheseitemhs afsallenby7.7pecrent. Thiisnclude1as2.p6ecrenrteadle 2012/13. clinienspendingonconsultantsince Figure4.1Reasl pendinggrowthinselectedgoodsandservices, 2012/13–2015/16 SourceN: ationaTl reasury Incontrastb,udgetfsoerssentiagloodasndservice–isncludingmedicine, fuela, ndcomputear ndlaboratoryservices���havegrownbyasmuchas 2pecrent in real terms. Spending on infrastructure maintenance contractorasndcontractehdealthservicehsaaslsioncreased. Althoughprocuremenrteformshaveledtocosst avingsonlearnerand Budgetsfoer ssentiagl oods andserviceshavegrownin reatlerms teachersupportmaterials,thereal reflectisncreasingpressurferomthe declineinthisspendingcategory basiecducationcompensatiobnudget. 36 Computesrervices Fuealngdas Operationaplayments Laboratorsyervices Medicaslupplies Outsourcesdervices Learnesruppormt aterial Stationeraynpdrinting Caterinagnvdenues Travealnsdubsistence Consultants -15-10-50510 Pecrenrteaglrowth 6.1 3.2 2.9 2.5 2.2 0.5 -1.0 -2.1 -5.0 -5.1 -12.6 Anintegratedsystemtomodernisepublicresourcemanagement Theintegratedfinanciaml anagementsystem(IFMS)t,oberolledoutoverthenexthreeyears,wilrleplace ageingandfragmentedfinancials, upplychainandhumanresourcemanagemenst ystemsa, ndtheiar ssociated technologies,acrossnationalandprovincialdepartments.Thesystemwillenablegovernmenttomakeits operationsmoreefficientandmodernisepublicresourcemanagement.Crucially,procurementreforms undertakenbytheOCPOwilbl eintegratedintothenew systemA. nadditionaal llocationwilbl emadeovetrhe mediumtermtorolol utthenewsystem.

CHAPTER4E: XPENDITUREPRIORI TIESANDDIVISIONOFREVENUE Anewcost-controilnstructiongovernschoocl onstructionI.sttipulates Newcost-controilnstruction toallowcorrectiveactionon schooclonstructioncosts thatw, herfeinaclostesxceedthceont robludgethperojecmt anagemr ust reporttotheprovinciatlreasuryS. uchreportsprovidetheopportunityto interrogatecosot verrunsonprojectst,racktrendsm, akeanynecessary changetsothceosmt odealndw, heraeppropriatet,akceorrectivaection. Medium-termspendingproposals Totaglovernmenstpendingiesxpectedtogrowa7t.p6ecrenitnominal termosvetrhMe TEFperiodT. hissectiondiscusseesxpenditurperoposals byfunctiongroucp–alassificationopfubliscpendinginsimilaorrrelated areas. Figure4A.2veragenominagl rowthinexpenditure, 2016/17–2019/20 SourceN: ationaTl reasury Figure4.2showtshastpendinginmo sftunctiongroupws ilgl rowabove Excludingdebstervice, post-schooel ducationand trainingisfastest-growing spendingcategory inflationD. ebt-servicecostrsemainthefastest-growingitemb, uitncrease aatslowepr acethanduringtheprev iousthreeyearsT. henexftastest-growingcategoryisspendingonpost-schooleducationandtraining, followedbyhealthandsociapl rotectionS. lowgrowthisprojectedfor generaplubliscerviceasnedconomiacffairs. 37 Debt-servicceosts Post-schooelducatioanntdraining Sociaplrotection Health Humasnettlementasnmd unicipainl frastructure Basiecducation Defencep,ubliocrdearnsdafety Economiacffairs Agriculturer,uradlevelopmenatnldanrdeform Generaplubliscervices 0510 Pecrent 10.1 9.2 8.2 8.2 8.0 7.1 5.8 4.9 4.8 4.1

2016MEDIUMTERMBUDGETPOLICYSTATEMENT 21 015/16–2019/20 Table4C.2onsolidatedexpenditurebyfunction, 4 3 244.8 233.8 261.9 250.7 280.6 268.8 7.1% 3 5 184.4 197.9 198.9 210.7 214.2 224.6 5.8% 6 216.4 225.8 239.6 4.9% 9% 1 197.6 212.1 228.3 8.0% 1 180.0 193.3 208.9 303.8 7 1394.3 163.6 1485.2 180.8 1592.2 197.2 451.5 1564.0 1676.0 1809.4 1C. onsistingonf ationalp, rovincials, ociasl ecurityfundsandpublicentities SourceN: ationaTl reasury Table4.3showsconsolidatedexpenditurebyeconomicclassification. Followingtheproposed1.p1ecrenrteductionofnationaldepartments’ operatingbudgetss,pendingongoodasndserviceispsrojectedtogrowin linewithinflationG. overnmenatlsoproposetsoreducelargeconditional grantosvetrhme ediumtermH. owevera7,t.p3ecrentg,rowthinspending ontransfercsontinuetsoutpaceinflationP. aymenftocrapitaalssetws ill growa5t .2pecrenot vetrhemediumtermT. hecontingencyreservewill increasferomRb6illioin2n017/1t8Ro 2b0illioin2n019/20. 38 2015/16 Outcome Rbillion 2016/17 Revised 2017/18 2018/19 2019/20 Medium-termestimates Average annual growth 2016/17– 2019/20 Basiceducation 212.5228. Basiceducation 2032.108. Arts, portr,ecreationandculture 10.1 9.5 Health 1591.689. Defencep, ublicordear ndsafety 179.1 189. Defenceandstatesecurity 5429.24 Policeservices 873.02 Lawcourtsandprisons 4319.52 Homeaffairs 8.8 7.4 Post-schooel ducationandtraining 684.65 Economicaffairs 187.2207. Industriadl evelopmenat ndtrade 278.98 Employmentl,abouar ffairsandsocial 7632.75 securityfunds Economicinfrastructureandnetwork 876.80 regulation Sciencet,echnologyi,nnovationandthe 19.28 environment Humansettlementsandmunicipal 1741.851. infrastructure Agriculturer,ura dl evelopmenat nd 265.32 landreform Generapl ublicservices 88.657.8 Executiveandlegislativeorgans 132.07 Generapl ublicadministrationandfiscal 4635.28 affairs Externaal ffairsandforeignaid 110.61 Sociapl rotection 1531.605. 11.0 53.7 93.1 43.8 7.3 76.6 29.9 76.2 90.4 19.9 26.9 69.8 13.6 43.7 12.4 11.2 11.9 56.0 59.8 99.3 106.0 46.6 49.8 8.8 9.1 81.1 89.3 32.1 34.4 78.0 79.0 2.3% 94.7 103.1 5. 20.9 23.1 6.2% 28.4 30.3 4.8% 73.0 76.4 4.1% 14.5 15.3 45.9 47.9 3.5% 12.7 13.2 7.2% 5.5% 8.2% 4.7% 6.8% 6.2% 1.0% 9.2% 7.3% 5.7% 4.3% 8.2% Allocatedbyfunction 1244.3 1 Debt-servicecosts 1281.487. Contingencyreserve – – 6.0 10.0 20.0 6.9% 10.1% – Consolidatedexpenditure 1373.1 1 7.6%

CHAPTER4E: XPENDITUREPRIORI TIESANDDIVISIONOFREVENUE 21 015/16–2019/20 Table4C.3onsolidatedexpenditurebyeconomi classification, .1 .0 .5 .5 .7 .1 .1 939.9 549.4 219.7 170.7 163.6 508.6 120.3 1010.1 587.0 234.6 188.5 180.8 541.7 129.5 1085.3 629.7 249.9 205.6 197.2 580.9 142.9 7.3% .6 .1 256.3 104.4 272.3 109.2 290.9 117.9 451.5 1558.0 1666.0 1789.4 451.5 1564.0 1676.0 1809.4 1C. onsistingonf ationalp, rovincials, ociasl ecurityfundsandpublicentities SourceN: ationaTl reasury Basiceducationa, rtsandsport Educationaccountsforabout4p0ecrentofpublic-sectoremployment, andabsorbsthelargestshareofprovincialbudgets.In2015/16, R153.4billionor78pecrentoftotalprovincialeducationexpenditure wentteomployeceompensation. OvertheMTEFperiod,governmentwillrolloutheSecondChance Newprogrammetogive learnersasecondchanceto writematric MatricProgrammeT. hisofferslear nerswhowrotegrad1e2examsafter 2008b,udtidnoptassa,nopportunitytoearnaationasleniocrertificate. Anearly-gradereadingassessmentwillalsobelaunchedtosolidify learnersr’eadingproficiencyintheihromleanguagesa,ndensuraeneasier transitiontousingEnglishasalanguageolfearningandteachinginthe intermediatpehase. Toincreasethenumbeorqf ualifiedteacherasged30andbelowentering thepublicservicet,heDepartmentofBasicEducationplanstoaward 30900FunzLa ushakbaursarieosvetrhme ediumtermT. hbeursariews ill gototeachersinpriority subjecatreasuchasmathematicss,cienceand technology.Thedepartmentalsoplanstoprintanddistributeabout 180millionworkbookstoschoolsovetrheMTEFperiodaatprojected cosotRf 3.b2illion. Throughtheschooilnfrastructurebackloggs rant t,hedepartmenetxpects Ovetrhemediumterm5, 10 inappropriateandunsafe schooflacilitiestobe replaced toreplac5e10inappropriataendunsafsechooflacilitiebsy2018/19O. ver thesameperiodt,hegranwt ilflundwaterprovisionfor120schools, sanitationfo7r41schoolasnedlectricitfyo9r16schools. 39 2015/16 Outcome Rbillion 2016/17 Revised 2017/182018/192019/20 Medium-termestimates Average annual growth 2016/17– 2019/20 Currenpt ayments798.9874 Compensationoef mployees4725.815 Goodsandservices1902.904 Interesat ndrenot nland1351.354 owf hichD: ebt-servicecosts1281.847 Transfersandsubsidies441.4 470 Provincesandmunicipalities1081.213 Departmentaal genciesandaccounts246.91 Higheer ducationinstitutions3207.5 Foreigngovernmentsandinternational2.12.2 Publicorporationsandprivate30.87 enterprises Non-profiitnstitutions3208.12 Households2182.738 Paymentsfocr apitaal ssets1021.601 Buildingsandothecrapitaal ssets7881.70 Machineryandequipment221.56 Paymentsfofrinanciaal ssets360.23 26.9 37.5 2.0 34.3 31.3 79.9 24.5 5.2 28.629.9 39.745.0 2.12.77.1% 36.935.04.4% 32.734.5 83.989.2 25.428.7 5.15.3 7.5% 6.9% 6.9% 10.0% 10.1% 8.1% 6.4% 13.8% 4.6% 6.8% 5.2% 4.3% 8.5% – Total1373.1 1 Contingencyreserve– – 10.06.020.0 7.2% – Consolidatedexpenditure1373.11 7.6%

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Inthesporst ectorm, edium-termfundingistargetedtosupporst chool sports,theIndigenousGames,sportingfederations,andtopromote transformationS. ociaclohesionremains programmesO. vetrhme ediumterm, thceornerstonoeafrtasndculture thseectowr ilflocuosnanimproved rollouot Mf zansGi oldenEconomyartsc, ultureandheritageinitiatives, anhderitagleegacpyrojects. Post-schooel ducationandtraining Inth2e016BudgetR, 5.b6illionwaasddedtouniversitysubsidietsofund NSFASreceivesadditional allocationsfour nderfunded universitystudents thzeeropecrenfteiencreasfeor th2e016academiycearN. SFASreceived additionaflundingoRf 10.b6illionovetrhe2016MTEFperiodO. tfhis amountR, 2.b5illionwaasllocatedinthecurrenyt eafrosrhort-termdebt reliefo7r 1753unfundedoirnadequatelyfundedstudentswhowereat universitiesinthe20132, 014and 2015academicyearsT. heremaining Rb8illionwasforunfundednewandcontinuingstudentsforthe2016 academiyceaarndbeyond. Inthe2017MTEFg, overnmenwt ilflundtheincreaseinfeesaht igher learninginstitutionsforthe2017academicyearu, ptoamaximumof 8pecrentf,osrtudentfsromhouseholdesarninguptoR60000peyrear. Significanttop-upasraelsmo adteoNSFAS. Table4A.4dditionstosupporut nive rsitiesandstudent s2, 016/17–2019/20 SourceN: ationaTl reasury Governmenitsworkingtoexpandpost-schooel ducationandtrainingto producealargerpoool fmid-tohigh-levesl killsasenvisionedinthe NationaDl evelopmenPt lan(NDP)I.mprovinglearnetrhroughpurtatebsy developingteachingandlearning vocationael ducationandtraining(TV supportplansfortechnicaland ET)collegesisapriorityT. hese collegews ilallsoreceivesupporttorefurbishworkshopfacilitiesa,ndto obtainequipmenat ndprotectivegear fopr racticatlrainingT. rainingfor artisanswillbeexpandeda, ndcommunityeducationandtrainingwill receivseupport. 40 2016/17 Rmillion 2017/182018/192019/20 Total 2016additions4882 555 NSFAShistoricadl ebrtelief2543– NSFASextension20392992 Zerofeeincrease2563300 2017additions15434988 NSFASextension15432370 UniversitiesF: eeincreasesubsidy2460 – TVETcollegesF: eeincreasesubsidy158– 5832– 16269 ––2543 3013–8044 2819–5682 5346571717594 256027649237 261827757853 168178504 Total614025543 1 178571733863

CHAPTER4E: XPENDITUREPRIORI TIESANDDIVISIONOFREVENUE Health Spendinggrowthinhealthismainlytosupportheexpansionofthe HIV/AIDSprogrammei,nparticulaar ntiretroviratlreatmentw, hichnow Antiretroviratlreatment programmenowreaches 3.5millionpeople reache3s .5millionpeopleA.significan itncreaseinantiretroviratlherapy iesxpectedwiththeimplementationouf niversatlest-and-trea(ttreatment initiationinalalgegrouprsegardlesosCf D4counti)nSeptembeortfhis yearG. overnmenht asalsoadoptedthe90-90-90HIVandAIDStargets (90pecrenot pf eoplelivingwithHIVknowtheisrtatus9, p0ecrenot f thoswe hoknowtheisrtatuhsavbeeenintroducedtoantiretroviratlherapy, an9d0pecrenottfhosreeceivingtreatmenhtavseuppressedviralloads). Health-sectobrudgetasruendeprressurdeuteocompensationcostsr,ising Compensationcostsand growingutilisationhaveput pressureonhealthcare budgets utilisationopfublihcealthservices, higheirmporptriceosmf edicineasas resulotcfurrencydepreciationa,ndsectoprrioritietshartequiraedditional fundingT. helatterincludestheNelsonMandelaChildren’sHospitailn Johannesburgw, hichistobeopenedlatetrhisfinanciayl eaar ndneeds operationaflunding. Thheealthsectoarccountfsoarbou1tp2ecrenotpfubliecxpendituraend iitismportanttousetheseresourceesfficientlyT. hepublichealthsystem irsealisingloweprharmaceuticaclosts arasesulotcfentralisedtendering, marketintelligence,medicinestocksurveillanceandnewdistribution systems. 41 Publicexpenditurereviews On31Octobert,heNationaTl reasurywilpl ublishtheresultso2f 7performanceandexpenditurereviewsw, hich wereco-initiatedwiththeDepartmenot Pf lanningM, onitoringandEvaluationin2013T. hereviewsscrutinise expenditureandprogrammeperformancedatatoassessandimprovethecoset ffectivenessopf ublicpolicyand budgetplanning.Akeyobservationemergingfromthest udiesisthatpoliciesaresometimesdesignedwith unrealisticexpectationsregarding theavailabilityoffunding. Thereviewsc, ompiledbyconsultantss,houldbeconsideredadvisorysubmissionsthatdonont ecessarilyreflect government’sviewsoar ssessmentS. ampleobservationsfromthereviewsincludethefollowing: • Housing–Acomparisonofsixhousingprogrammesfundedthroughthehumansettlementdevelopment granst howsthaot nly123000housingunitsaredeliveredpeyr eara, gainstthepublishednumbeor2f 54000 unitsT. hefulcl osot af nRDPhouseiscalculatedatR169000c, omparedwithasubsidyojfusRt 90000at thetimeotfhestudyT. headditionacl ostsarelargelymeftrommunicipailnfrastructurefundingM. obilisation ofprivatefinanceisinsufficient.Athepresentpaceofdelivery,itwouldtake30yearstoeradicatethe estimatedbacklogo2mf illionhousinguniut singtheRDPandinformaslettlemenmt odeoldf eliverya,act ost oRf 600billion. • Watear ndsanitation–Astudycoveringfoumr unicipalitiesfoundthawt eakrevenuemanagementa,failure tobilcl onsumersl,owpaymenltevelsandineffectiv edebct ollectionunderminethesustainabilityowf ater services.Shouldnon-revenue waterbereducedto25pecrentthroughrepairs,maintenanceand refurbishmentt,hemunicipalitiesinthestudycouldrealiseanadditionaRl 800millionpeyrear. • TVETcolleges–From2010to2014e, nrolmentsinTVETcollegesnearlydoubledf,rom358393to702383. Collegesreceiveove8r 5pecrenot tfheifrundingfromgovernmentI.n2013t,heestimatedthroughpurtate fortheNationaCl ertificateVocationalwasjus1t 0.6pecrentw, hichmeansthaftorevery10studentsthat enroinlacertificatecourseo, nlyonecompletesthecourseaftesrixyears. • Partneringofsciencecouncilswithprivatesector–Asagroup,thesciencecouncilsarenoteffectivein partneringwiththeprivatesectorM. intekandtheCouncifloSr cientificandIndustriaRl esearch(CSIRa) re exceptionsF. oreveryR1thagt overnmenitnvestsinthesciencecouncilso, nlyR0.62inprivateincomeis generatedc,omparedwith eglobanl ormo1f :1. • Cosdt riversinforeignmissions–Ovetrhepastthreey earst,herateosf pendinggrowthaftoreignmissions hasexceededtherateorfanddepreciationS. pending growthwasdrivenlargelybyhigherpropertycosts, allowancesforSouthAfricanstaffa, ndgrowthinthe numberolfocallyrecruitedpersonnelC. ost-of-living allowancesforSouthAfricanstaffatmissionsareexceptionallygenerous,rangingfromR600000to R1.3millionpeyreara, ndarepaidontopoffusllalariesa, ccommodatione, ducationandothear llowances.

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Thperoposedsugar-sweetenedbeveragteaxiesxpectedtohelpreductehe incidencoenfon-communicabldeiseasaessociatedwithighsugairntake, suchasheartdisease,strokeandtype2diabetes.Healthpromotion interventionsi,ncludingprimarypreventionandearlydetectionofnon-communicabldeiseasesw, ilbliemplementeadlongsidtehperoposedtax. Proposedsugatraxtobe introducedalongsidehealth promotioninterventions Sociapl rotection Aasnnouncedinth2e016BudgeSt pe dependencygrantesachincreasbey echt,hoeld-aged,isabilityandcare R10inOctobe2r016G. overnmenhtas nowdecidedtoalsoincreasethechildsupporgt ranbt yR10toR360to offsettheffectoshfighfoodinflationrecordedearlietrhiysear. InadditionC, abineht asapprovedinprincipleanextendedchildsupport grantfororphanswhohavelostbothparentsbutareinthecareof extendedfamilymembers.Thegrantw, hichcouldbeimplementedin 2018/19b, ringtsheincomeprotectionaf paritwy itthhaptrovidedtorphanisnfostecrare. fordedtotheseorphancslosetro Witheffectfrom2017/18,anewconditionalgranttoprovinceswill supportheemploymentofsocialworkergraduatesfromthenational scholarshipprogrammeS. ociawl orkerswilbl eemployedbyprovinces Newconditionagl rantto expandearlychildhood developmenstervicestobe introduced andnon-profiotrganisationsA.seco ndconditionaglranwt ilelxpandearly childhood development services and the maintenance of related infrastructureT. heNationaTl reasuryisworkingwiththeDepartmenot f SocialDevelopmentonastrategytoguidefuturefinancingforearly childhoodevelopment. Agriculturer,uradl evelopmenat ndlandreform Inlinewiththeaimosmf aximisingagriculture’csontributiontojobasnd growtha, ndmoreefficienut seofpublicresourcess, everagl overnment departmentsareworkingtoimprovecoordinationoffarmersupport programmesT. hiswilelliminatexistingoverlapasnddouble-dippingof fundingfromthaegriculturaenrduradlevelopmendtepartments. NationalandprovincialgovernmentreprioritisedR1.b6illiontowards emergencyfundingfodr rought-relieifnitiativesbetweenApri2l 015and June2016T. hefundingwaussedtoprovidewater-tankeringserviceasnd animalfeed,andtorefurbishanddrillboreholes.The2016 Governmenpt rovidesa furtheRr 553.3millionfor droughrtelief Adjusted EstimatesoNf ationaEl xpenditure allocatesafurtheRr 553.3millionfor theacquisitionoafmobiledesalinationplanat ndanimafleeda, headof rainesxpectedlateirnthyeear. Ovetrhemediumtermt,heagri-parksin itiativewilbl erolledoutT. hese parksareintendedtohelpsmallfarmerswithproduction,processing, logisticsm, arketingandtrainingwithindistricmt unicipalitiesT. heyare expectetdocontributteorurajlobcreation. Sciencet,echnologyandtheenvironment Ovetrhemediumtermt,heDepartmenot Sf cienceandTechnologywill focusonincreasingresearchanddevelopmentT. heCSIRwilpl erform relevantresearch,strengthentheskillsbase,andtransferskillsand technologyE. achyeatrheCSIRwilflundresearchthawt ilrlesulitnat least25newtechnologydemonstratorsand15newpatents.National NationaRl esearch Foundationtogrownumber omf asterstudents supportedto5350 42

CHAPTER4E: XPENDITUREPRIORI TIESANDDIVISIONOFREVENUE ResearchFoundationfundswililncrea supportedt35o5p0eyreaorvetrhtehree-yeapreriod. sethenumbeor mf asterstudents DuringtheMTEFperiodg, overnmenwt ilel stablishtheWasteBureau, whichwilbl eresponsiblefoor verseeingtheimplementationoifndustry wastemanagemenpt lansT. hiisncludems anagingandisbursingrevenue collectedfromwastemanagemenct hargesa, ndputtinginplaceanew Bureautooversee implementationoifndustry wastemanagemenpt lansto beestablished institutionaalrrangementtomanageth revenuceollection. erecyclingotfyreasndassociated Employmentl,abouar ndsociasl ecurityfunds Spendinginthisareaisalignedtomedium-termstrategicframework targettsobeachievedby2019c:reating6millionshortt-omedium-term jobtshroughthEe xpandedPubliWc orkPs rogrammei,ncreasingstatutory workplaceinspectionsbytheDepartmentofLabour,andpromoting industriadlevelopmenatntdrade. GovernmenetxpecttsorololutthCe ommunityWorkProgrammienevery municipalitybyMarch2017O. vetrhenextthreeyearst,heJobFs undis expectedtospendR3.b7illion projecttshactreatpeermanenjtobsa,nd addresstructuraclonstrainttsogrowthandemploymentW. hilespending onthfeundhabseenslowih,tacsreatedpermanenetmploymenatcatost ofR50200perjobw, hichcomparesfavourablywithothergovernment programmes. AproposedR4b5illionwillbeallocatedtopromoteindustrialisation, economictransformationandsustainableresourcemanagemenot verthe mediumterm.Asignificantportionofthisamountwillbeprovided throughincentivesi,ndustrypromotiona,ndassistancteosmalelnterprises andcooperatives. Medium-termallocationof R45billiontosupport industrialisationand transformation Humansettlementsandmunicipailnfrastructure Humansettlementsandmunicipailnfrastructureinvestmentsarefocused onimprovingaccestsohousingw, ater, sanitatione,lectricitya,ndsafaend reliablepublictransport.Overthemediumterm,fundingwillsupport waters,anitationandelectrificationinfrastructuredemandinruraal reas, andimprovme obilitayndaccestsoshelteirunrbanareas. Toimprovetheprovisionofsociahl ousingsubsidiesw, hichhelppoor householdasccesasffordablreentahlousingg,overnmenptroposesshifting Deliveryorfentahl ousing unitsfolrow-income householdstobespeeded up fundsfromthe humansettlementsdevelopmentgranttotheSocial HousingRegulatoryAuthority.Thisshiftisexpectedtospeedupthe deliveryo94f 44rentahl ousingunitsfohr ouseholdswithanincomeof belowR530p0emr onth. Overthemediumterm,fundsareshiftedfromthe humansettlements developmentgrant totheHousingDevelopmentAgencyforproject planningocfatalytipcrojectisntended tochangtehsetructuroetfownasnd citiesT. hperojectasrteboiemplementebdetwee2n01a6nd2030. ThNe DPtarget2s030fourniversaalcc on27underservice districts,conn estsoelectrificationW. ithfaocus ectioncostsareincreasing,because targetedareaasrleesasccessiblaendfurthefrromthgeridG. overnmenits increasinglmy akinugsoeafdvanceisnon-gridr,enewablteechnology. 43

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Ovetrhme ediumtermt,hIentegratedNationaEl lectrificationProgramme expectstoprovide772650householdswithaccesstoelectricity.An amountofR99.3millionwillbereallocatedfromtheprogrammeto establishtheNationalRadioactiveWasteDisposalInstitute,whichis responsiblefodr isposingwasteaKt oebergandPelindabaT. heallocation Ovemr ediumterm, 772650householdsareto beconnectedtothegrid ifsotrhsetart-upcostastshienstitute’ osperationasrteobseelf-funded. Above-inflationincreasetsobulkserviceasndhouseholdgrowthincrease municipalfinancialobligationssignificantly.Asaresult,R1billionis addetdothleocaglovernment equitablseharie2n018/19. Economicinfrastructureandnetworkregulation Governmenctontinuetsoinvesitneconomiicnfrastructurienlinwe iththe NDP. ThebaselineallocationoftheSouthAfricanNationalRoadsAgency LimitedincludepslanningfotrhceonstructionotfhNe 2WildCoasrtoad, upgradetsotheR573MolotoRoada,ndthemaintenanceo2f 4103kmof N2WildCoasrtoadproject toreducetravetlime betweenDurbanandEast London thneationarloadnetworkT. hNe 2Wild Coasrtoaditsobaepproximately 410kmo,wf hich112kminsewandincludensinberidgesF. undingfotrhe majobr ridgecsrossingtheMsikabandMtenturivegr orgews ilbl efrom thebudgeat ndtheroadupgradeswilbl etolledT. heprojecwt ilrleduce travetlimebetweenEasLt ondonand additiona,medium-termallocationtothe DurbanbyuptothreehoursI.n provinciarloadsmaintenance grant iesxpectetdomaintain3590kmopfrovinciarloads. Governmentplanstobeginconnectingpublicbuildingstohigh-speed internet over the MTEF period and will provide broadband to 613g5overnmenst itesaatminimumspeedof10megabitspesrecond. Givendelayasasresulotlfitigationg, overnmenpt roposetsoshifftunds awayfromsubsidiesforset-topboxesin2017/18.Thefundswillbe reallocatedtothdeuaillluminationprojectw, hichwilolperatbeothdigital andanaloguseignalfsoarninterimperiodbeforsehuttingoftfhaenalogue signaalpsarottfhme igratiotndoigital. Fundasre assignedtosupportthceapacityotfhPe ortRs egulatora,ndto developthecapacityforaiel conomicregulationinanticipationofthe proposedsinglteransporetconomircegulatorT. oimprovme anagemenotf waterresourcesandstrengthencoordinationwithotherinstitutions involvedinwater-relate dmatters,fundsareshif tedtoestablishwater catchmenmt anagemenatgencies. Defencep, ublicordear ndsafety Ovetrhemediumtermt,heSouthAfri canPoliceServicewilsltrengthen implementationofitsback-to-basicsstrategy.Thestrategyseeksto promotaenapproachtopolicingfocusedoneverypolicoefficedroingthe basicospfolicinpgroperlayncdonsistently. FundasretobereallocatedwithintheDepartmenotDf efencetoprovide comprehensivehealthcaretoSouthAfricanNationalDefenceForce memberst,heidr ependentsandmilitaryveteransT. hesefundws ilclover the increasing costs of essential medicine and medical supplies. Refurbishmenot fmilitaryhospitalswilal lsolimiot utsourcingofthese healtshervices. Fundshiftedwithin DepartmenotDf efencefor healthcarecostsodf efence forcemembers 44

CHAPTER4E: XPENDITUREPRIORI TIESANDDIVISIONOFREVENUE Fundws ilblreeprioritisedtothDe epartmenotHf omAe ffairtsoaugment thebudgeftotrheimplementationotfheadvancedpassengepr rocessing systemT. hseystemwilplrevenpteoplwe hoarperohibitedourndesirable personasdsefinedinthIemmigrationAc(t2002f)romboardingflighttso Fundsreprioritisedto DepartmenotHf omeAffairs foar dvancedpassenger processing SouthAfrica.Itwillalsoallowau profilingopfassengeirnformation. thorisedagenciestoconductrisk Generapl ublicservices Thefocusovetrhemediumtermwilbl eonimprovingservicedelivery, complementedbyeffectiveaccountability tocitizensA.centratlaskwill biemplementingthIeFMSandcleaningupthPe ERSALhumanresources systemfotrhpeubliscervice. TheDepartmentofPlanning,MonitoringandEvaluationwillstepup servicedeliverymonitoringovetrhemediumtermT. hiswililnclude90 unannouncedvisittsoservicdeeliveryfacilitiepseyrearO. vetrhme edium terms,itestobevisitedincludehospitalsc, linicsp, olicestationsH, ome Affairlsocaolfficeasndmagistratceourts. Divisionorfevenue Overthethree-yearspendingperi odahead,nationaldepartmentsare Stronggrowthinallocations toprovincesandlocal governmenpt rioritises frontlineservices allocated47.p5ecrenotafvailablneon-interesetxpenditurep,rovinceasre allocated43.4pecrenta, ndlocagl overnmentsareallocated9.1pecrent. Theseallocationsequatetospendinggrowtho5f .p3ecrenftonr ational government(excludingindirectgrants),7.5pecrentforprovincesand 8pecrenftolrocaglovernmentS. trongrowthinallocationtsoprovincial andlocaglovernmenrteflecttshperiorityplacedonfrontlinseervicessuch ahs ealthe,ducationandbasicservicesa,ws elaltsherisingcosottfhese serviceds uetohighewr agesp, opulationgrowtha,ndbulkelectricityand watecrosts. Table4D.5ivisionorfevenue2, 016/17–2019/20 % SourceN: ationaTl reasury Provinciaflundingchallenges:equitablesharereductions ProvincescontinuetofacefundingchallengesovertheMTEFperiod, mainlyasaresultofthe2015public-sectorwagesettlement,which increasedcompensationcostasbovebudgetedamountsI.nadditionf,iscal consolidationandreprioritisationaffectsalslpheresogf overnmentA. as resultr,eductionsareproposedfortheprovinciael quitablesharea, nda 45 2016/17 Rbillion 2017/182018/192019/20 Average annual growth 2016/17– 2019/20 Nationaal llocations55598.98.7 Provincial locations50503.85.1 Locagl overnmenat llocations1041.912.5 631.3681.56.8% 578.6621.07.5% 121.5132.38.0% Totaal llocations1165.2 1240.4 1331.41434.87.2 Percentageshares Nationadl epartments 48.0% Provincial 43.0% Locagl overnmenat llocations 9.0% 47.5%47.4%47.5% 43.4%43.5%43.3% 9.1%9.1%9.2%

2016MEDIUMTERMBUDGETPOLICYSTATEMENT smalnl umberofprovinciaal ndmunicipacl onditionagl rantsH. owever, fundasreaddedintheouteyr earostfheMTEFperiodtocompensatefor risingcostsintheservicesfundedthroughtheprovincialandlocal governmenetquitablsehares. ThNe ationaTl reasuryw, orkingwithpr ovinciatlreasuriesS, tatisticSs outh Reviewopf rovincial equitableshareformulato becompletedin2018 AfricaF, inanciaalndFiscaCl ommissionandrelatednationadlepartments, hasbegunanin-depthreviewotfheprovinciael quitableshareformula. Thefirspt haseotfhips rocesiscsompletea,ndthereviewiesxpectedto bceompleteid2n018. Efficienmt unicipael xpendituretosupporbt asicservices Newlyelectedmunicipalcouncilsareresponsiblefordrawingup integrateddevelopmenpt lansthawt ilgl uidetheirinvestmentsoverthe nexftiveyearsG. ivenbudgetaryconstraintsa, lml unicipalitiesneedto focusonmor efficienstpendingandvaluefomr oneytoimprovebasic servicedeliveryR. igorousfinanciaml anagemen–tincludingtransparent procuremenptracticese,ffectivbeilling andrevenuceollectiona,ndtimely paymentofcreditors–isaprerequisiteforimprovingmunicipal performanceM. easurestosuppormt uni enforcceompliancew, ilblsetrengthened. cipalitiesandw, hereappropriate, Nationalgovernmentwillalsoworkwithmunicipalitiestoplantheir infrastructureinvestmentsinwaysthatpromoteeconomicgrowthand reverseapartheidspatialplanningpatterns.Thisrequirescoordinated actioninthedeliveryofinfrastructure,housingandpublictransport servicestocreatedenser,moreinclusiveandproductivesettlements. Coordinatedactionin infrastructuredeliverykeyto promotinggrowth Initiativestoaccelerateinvestment infullysubsidisedandaffordable housinga, ndtoacceleratetheintegratedin-situupgradingofinformal settlementsw, ilbl eintroducedT. hesewilclomplemenwt orktopreparea pipelinoelfandevelopmenptrogrammeislnargecrities. Measurestoimprovecoordinationof urbanpublictransporstystemswill bientroducetdocomplemenotngoinignvestmenitncommuterraialnbdus rapidtransistystemsG. overnmenwt ilal lsoworkwithfinanciallysound municipalitietsoexpandtheiirnvestmenpt rogrammesonthestrengthof theiorwnbalancseheetsP. rogrammetsothiesffecatruendedrevelopment ipnartnershiwp itthhperivatseectoarndevelopmenftinancienstitutions. Detailoscfhangetsotransfertsoprovinceasndlocaglovernmenotvetrhe MTEFperioadrceontaineidtnhteechnicaalnnexure. Conclusion Downwardrevisionstorevenueforecastsandnewspendingpressures havepromptedrevisionstospendingplans,includingreductionsto operatingbudgets,andtransferstoprovincesandpublicentities. Headcounthsavceomdeownandfuturpeublic-sectowr agaegreementsi,f balancedc, ouldallowgrowthG. iventheconstrainedfiscael nvironment, improvingspendinqgualitiynasecessity. 46

Annexures 47

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Thipsagwe alsefbtlankintentionally. 48

Fiscarliskstatement Introduction Governmenitscommittedtostabilisingnationadl e sustainabilityopfublifcinancesT. hirseporstetosut affecttheachievemenottfheseobjectivesI.atlso bat sashareoGf DPa, ndassuringthelong-term thNe ationaTl reasury’asssessmenotrfisktshactan proposeasframeworkfore spondingtotheserisks, andserveastshbeasifso driscussioonffiscaclhoicefsacingthceountry. Themosstignificanftiscarlisks ovetrhenextthreeyearsarelo wer-than-expectedeconomicgrowth, higher-than-expectedincreaseisncompensationbudgetsa,ndtheparloufsinanceossfomestate-owned companieasndpubliecntities. Theriskframeworkisorganisedintofourbr executionc, ontingenat ndaccruedliabilitiesa, nd oadcategories:macroeconomic,policyandbudget long-termspendingcommitmentsF. iscarlisksare interdependenatndhighlycorrelated: whenariskmaterialiseisctanhaveconsequencefsomr orethan onecategoryF. oer xamplea, neconomiccontractioncouldweakenastate-ownedcompany’sbalance sheett,riggeringacalol nagovernmengt uarantee, Similarlya,nunanticipatedincreasienthpeublic-s athesametimethataxrevenueisdeclining. ectowr agbeilclouldisplacoetheerssentiaslpending itemasnderodtehleong-termfinanciaplositioontfhGe overnmenEt mployeePsensioFnund(GEPF). FigureA.1Government’sfiscarliskframework 49

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Institutionasl trength sandfiscarlisk Thgelobaflinanciaclrisiesxposedvulnerabilitieisnpublifcinanceasroundthwe orlda,ndtriggeredebt criseasmonsgeeminglsyolvengtovernmentsM. ucohtfhiencreasiepnublidcebsttemmedfrom: • • • Anunwillingnesosirnabilitbynyationaglovernmenttsocontroelxpenditure Hiddedneficitasnudncontrollebdorrowinigtnhleowetrierosgfovernment Choicebs ypublicagencieasndstate-ownedcompanietshactommittednationabl udgettsoimplicit guaranteesw, ithouftollowingnormabludgeptrocessess,ucahtshpeursuiotlfoss-makingmandates Unanticipatebdailoutospfrivate-sectofrinanciailnstitutions Largiessuanceosfforeign-denominatedebtthagtrewrapidlaylsocaclurrenciedsepreciated Underfundesdocialsecuritysystems. • • • SouthAfrichaasseverailnstitutionasltrengthtshastupporftiscaslustainability: ThCe onstitutionandthPe ubliFc inancMe anagemenAt c(t1999e)ntrenchcaentraliseda,ccountable • frameworkfofriscaml anagementA. lml oneyreceive dbynationagl overnmenmt usbt epaidintoa NationaRl evenuFe unde,xcepmt oneyreasonablyexcludedbyanacotPf arliamentA. lglovernment budgetsandbudgetaryprocessesmustpromotetransparency,accountabilityandtheeffective financialmanagementoftheeconomy,debtandthepublicsector.Thebudgetispresentedin consolidatedtermsr,eflectingthespendingofpublicentitiess,ociaslecurityfundsandprovincial governmentsi,ncludinagmounttshaatrneoftinancedfromthNe ationaRl evenuFeund. Themajorityogf overnmendt ebitds enominatedinrandsw, ithlongmaturitiesT. hedomesticbond markeitsdeepandliquidr,educingdebt-refinancingrisksL. oansandguaranteesbysubnational • governmentarelimitedandsubjectonationale gislationP. rovincesarealmostentirelyfunded throughtransferfsromnationagl overnmentB. orrowingbylocagl overnmentiscsappedandlimited tomajomr etrows ithsignificanrtevenue-raisinpgowers. Themedium-termexpenditureframeworkcreatesa morepredictableo, penandtransparenbt udget • processA. crossgovernmentb, udgeet xecutionishighlyeffectiveI.nstancesosfpendingexceeding appropriatedlimitasrerareT. hefiscaflrameworkis underpinnedbycrediblemacro-fiscaflorecasts. TheSouthAfricanRevenueService(SARS)hasconsistentlyimprovedtheefficiencyofthetax systemandhastypicallyexceededrevenuecollectiontargetsA. nddespitenewspendingpressures, governmenhtams aintainetdhexpenditurceeiling. SouthAfrichaarasecordoffiscaslustainabilityr,eflectedingovernment’ws illingnestsoreductehe deficiitnresponsteorisingdebtT. hipsolicycommitmenttofiscaslustainabilityisupportedbythe SouthAfricanReservBe ank’isnflation-targetingregimew, hichelpms anagienflationexpectations, andthfeloatingexchangreatew, hicahbsorbesxternaslhocks. Thfeinanciaslectoirws elclapitalisedandregulatedT. hleikelihoodoffailuroemaf ajobrankotrhe • • financiaslectoirtselifvs erylowI.nit2s 014fi nanciaslystemstabilityassessmentt,heInternational MonetaryFund(IMFd) eterminedthaSt outhAfrica’fsinanciaslectowr aasdequatelycapitalisedto withstandseversehocks. Lookingfurthearheadt,hNe ationaTl reasury’lsong-termmodesluggesttshaetxistingcorseocial spendinpgrioritie(se.ge.ducationh,ealtahndsociaglrantsa)rseustainabloevetrhceomingdecades. Inadditiont,hGe EPFiws elflunded. • Despitethesestrengthst,herearesignificanrtisktsothefiscusS. lower-than-expectedeconomicgrowth raisetshepossibilityomf issedfiscatlargetsE. ffort tsoshiftthecompositionoefxpenditurecontinuteo befrustratedbystronggrowthinthewagebillandunderspendingoncapitalbudgetsC. ontingent liabilitie(swhichincludeguaranteetsostate-ownedcompaniesh) avegrownstronglya,hs avefinancing pressurefsromthseovereigdnebsttock. 50

FISCALRISKSTATEMENT Macroeconomicrisks Thme ainrisktofiscaclonsolidationinanycountryisslower-than-projectedGDPgrowthC. onsequently, inaccuratoebriasedeconomicforecastusndermineth EconomiRc esearchaSt tellenboschUniversityfound onparwitho, rbetterthant,hoseofprivate-sect feiscaolutlookA.2013reviewbytheBureaufor thatthNe ationaTl reasury’gsrowthforecastws ere oreconomistst,heIMFandthebureau’sownT. he NationaTl reasury’Gs DPfor ecastpsrovidcaerediblbeasifsofriscapllanning. Howeverd, omesticgrowthforecastshavebeenreviseddownwardsineachsuccessivebudgest ince 2011R. easonfsotrheserevisionhs aveincludeddownwardrevisionosgf lobapl rojectionbs ytheIMF andlower-than-anticipatedcommoditypricesT. herehave alsobeendomesticshocktsogrowthsuchas electricityshortages,labourdisruptionsanddrought.Downwardrevisionsresultedintaxrevenue collectionunderperformingagainstth achieveb,ecaustehteargetasroeftenexpr eforecastsT. heyhavealsomadefiscatlargetsmoredifficulto esseadpasercentagoenfominaGl DP. FigureA.2Downwardrevisionstogrowthforecast SourceN: ationaTl reasury Taxrevenuperojectionasraelsoaffectedbythreelati onshipbetweeneachtaxtypaenditbsaseO. vetrhe pasftouyr earst,heaggregatetax-to-GDPbuoyancy–therati otfaxrevenuegrowthtonominaGl DP growth–arsemaineadatbou1t.o2hrigher. FigureA.3Grosstaxbuoyancy SourceN: ationaTl reasury 51 2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10 2008/09 2007/08 2006/07 2005/06 2004/05 2003/04 2002/03 2001/02 2000/01 Pecrent Pecrent 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 6 5 4 3 2 1 0 -1 -2 Budge2t010Budge2t011Budge2t012 Budge2t013Budge2t014Budge2t015 Budge2t016MTBP2S016Outcome 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Significanct hangestotaxpolicyhavecontributedtobuoyancyl:essgenerousrelieforfiscadl rag, increaseisnpersonailncomteaxratesp,hasingouotcfertaindeductionsa,ndstrongrowthinthexcise andfueleviesU. nderlyingeconomicfactorshavealsosustainedtaxbuoyancye, venasgrowthhas slowedS. trongwaggerowthp,articularlyatthuepp erndoifncomdeistributionh,assupportedpersonal incometaxreceiptse, venasemploymenct reation receiptfsromcorporateincometaxw, hileimporths a weakenedE. xchangeratedepreciationhasbuoyed veremainedresilienitnthefaceohf igheirmport pricesa,ddingtorevenuferomcustomdsutieasndVATW. aggeainasndrisingasseptricehsavfeedinto resilienhtouseholdemandp,articularlfyodrurablgeoods. TheNationaTl reasury’rsevisedeconomicforecasitndicatetshaant umbeortfhesetrendms aynobt e sustainedovetrhme ediumtermA. ccordinglyr,evenuperojectionhsavbeeenrevisedownsignificantly, reflectinglowetraxbaseasncdonservativbeuoyancies. Ontheexpenditureside,theinflationforecastdir ectlyinfluencesmajorspendingitems,including compensationbudgetsw, hichiesxplicitlylinkedtoconsumeprriciendexinflationC. hangetsoexchange andinteresrtateisnfluenctehceosotsfervicingdebta,ndthceosotifmportedgoodsuchams edicines, fuealndcapitaelquipment. Macroeconomicscenarios Toassestshemagnitudeoffiscarliskfslowingfrommacroeconomicfactorst,heNationaTl reasuryhas developetdhreme oderate-probabilitsycenarios: • ScenarioA–Long-termd eclineinpotentiagl rowth : ProjectedGDPgrowthfor2016doesnot changeb,ugtrowthicsonsiderabllyoweorvetrhme ediumtermandfailtsorisaebovp2eecrenitn thelongterm. Inthisscenario,theimplementationofreformsisslow,perceptionsofpolicy uncertaintycontinueg, lobalgrowthremainsweakandcommoditypricesdonotrecoverT. hese developmentfsurtheerroddeomesticonfidencea,ndconstraininvestmenatndeconomigcrowthA. s aresultt,hesovereigncreditratingiscutosub-investmentgradea, sgovernmentstrugglesto stabilisegrowthofpublicdebtG. overnmenftaceshighebr orrowingcostsastheriskpremiumis elevatedovearlengthyperiodD. omesticallyl,ong-termgovernmenbt ondyieldsareconsiderably highetrhanthebaselineA.weakerandraisesin flationovetrhemediumtermb, urteturnstothe targertangeduetopersistentlyweakdemandT. herepurchaserateincreaseisn2017i,nresponseto higheirnflationb,urtemainusnchangefdromthbeaselintehereafteorwintgoweagkrowth. ScenarioB–Heightenedglobatlurbulence: GDPgrowsbyonly1pecrenitn2017andreaches • 1.p9ecrenitn2019. Overthelongtermg, rowthrisesabovep3ecrentI.nthisscenariog, lobal turbulencereturnsa, stheimpacot Bf ritain’sdecisiontoleavetheEuropeanUnionandconcerns abouCt hina’tsransitionarreealisedT. hipsromptasn forecastsG. lobapl roductivitygrowthcontinuesto additionadlownwardrevisionogflobaglrowth declineasaresulot fslowimplementationof policyreformasndlowetrradientensityS. lowegrrowthindevelopingeconomieisasccompaniedby higheriskaversionr,educedcapitafllowsand domesticriskpremiumrisesS. tateborrowingcosts premiumT. hwe eakerranpdutuspwardpressuroeninflation. ScenarioC–Strongeerxporrtesponsteoran depreciation 2017andstabiliseasatbou2t.p5ecrenitnthoeuteyrears. weakecr ommodityprices. areassumedtomirrotrh Asaconsequencet,he eincreaseintherisk : GDPgrowthreache1s.6pecrenitn Threandhadsepreciatedsignificantlyin I.nthisscenarioe,xportrsespond • recenytearsy,etthiencreas ienexporthsansobteencommensurate morestronglytoadepreciationinthexchangerateD. emandfromotheermergingmarketisaslso strongerd, espiteventisntheEuropeanUnionC. onsequentlyg, lobadl emandims oderatelystrong, withaveragceommoditpyricep3secrenhtighetrhancurrenbtaselinaessumptions. 52

FISCALRISKSTATEMENT FigurAe .4illustratetshreesultostfhessecenariofso thbeaselinfeorecasutseditnhMe TBPS. Gr DPgrowthandneltoandebitncomparisonwith FigureA.4Growthscenariosandresults SourceN: ationaTl reasury Thfeiscarlesultisnthessecenarioasraefsollows, antdhagtovernmendtoensortespondwitnhewfiscaml easures: • ScenarioAresultisntheprimarybalancewidening assumingthatthexpenditurceeilingremainisnplace bybetween1.5and3percentagepointosGf DP ovetrhemediumtermI.nthiscenariot,heprimarybalanceremainsindeficietvenovetrhelong-termanda,rasesulthdeebt-to-GDPratidooensostabilise. • ScenarioBresultsinmoderatedeficitslippagerelativetotheMTBPSofbetween0.2and 0.p8ercentagpeointosvetrhme ediumtermI.nthisscenarioiia,tsnticipatedthatthperimarybalance wilrleturntosurplusasgrowthrecoversA. saresultd, ebitsexpectedtostabilisein2021/22at 2to3percentagpeointhsighetrhanthMe TBPStarget. • ScenarioCresultsintheprimar stabiliseas4t7pecrenotGf DPin2018/19. ybalanceclosingmorequicklythanthebaselineforecastD. ebt Thtewodownsidsecenario(sAandBa)ssummae ildlyhigheirnflationoutlookresultingfromwa eaker randexchangerate.However,asignificantrevisionoftheinflationoutlookwillraisethecostof inflation-linkedexpendituresuchascompensation spendinigtems. budgetsw, hichwililncreasinglycrowdouot ther Macroeconomicrisksanddebmt anagement Debt-servicecostasrexcludedfromthexpenditurece spendingT. hesecostsaresensitivetomovementsinin ilingbecausetheyarenopt arotdf iscretionary teresat ndexchangeratesa, swelal sinflation. However8,p8ecrenotgfovernmendtebitssuancieisnthfeormoffixed-ratienstrumentws ithrelatively longmaturitiesT. hesienstrumentdsnoortespontdaodversme ovementistnhme acroeconomiocutlook. Thpeublifcinanceasrwe elplrotectedagainscturrenc ydepreciationbecausgeovernment’dsebsttockis largely denominated in rands. However, weak economic growth and associated revenue underperformancwe ouldresulitnanunplannedincreas osfervicinngewbonds. Ovetrhceomingdecader,edemptionosdfomestiacndfo ienthbeorrowingrequirementa,ndraistehceost reigndebatrperojectedto increasea,sshownin FigurAe .5T. hiisntroducesignificanrtefinancingrisksT. hfeiscasltrategytoreductehbeudgedteficit outlinedinChapter3helpstomitigatethisriskO. verthemediumtermg, overnment’sbond-switch 53 2021/22 2020/21 2019/20 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2021/22 2020/21 2019/20 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 Pecrent PecrenotGf DP MTBP2S016 Budge2t016 ScenariAo ScenariBo ScenariCo 3 Growtshcenarios60 NeltoadnebtGo DP 2 55 1 50 0 45 -1 40 -2 35

2016MEDIUMTERMBUDGETPOLICYSTATEMENT programme–whichexchangesshort-termforlonger-furthemr itigattehirsisk. termdeb–tandincreasingcashbalanceswill FigureA.5Maturityprofileogf overnmendt ebt3, 0Septembe2r 016 SourceN: ationaTl reasury ThestructureoSf outhAfrica’sovereigndebsttockisustainableandcomfortablywithinglobabl est-practicebenchmarksI.nternationailnvestorsholdabou3t p5ecrenot tfotaol utstandingdebstecurities (includingdomesticissuances)i,ndicatingamoderatesusceptibilitytocapitafllightN. onethelesst,he depthotfhedomesticmarkerteducesthelikelihoodoafliquiditycrisisT. heshort-termrolloverisk emanatingfromtheTreasurybilpl ortfolioismonitoredthroughabenchmarklimiot 1f 5pecrenot f domestidcebtC. urrentlyT, reasurybillasrbeelowthilsim itM. ordeetaiolnsovereigndebiptsrovidedin th2e015/1d6ebmt anagemenrteporta,vailabloetnhNe ationaTl reasurwy ebsite. Policyandbudgeet xecutionrisks Policryiskisncluduenplannedoermergencsypendingrequesttshactoulbdreachthexpenditurceeiling. Budgeet xecutionrisksemergewhendepartmentsorentitiesdonoat chievespendingtargetsA. tthe aggregatelevelb, udget executionhasbeengoodS. p endingoutcomesaveraged0.2pecrenot verthe resetxpenditurceeilingT. heraereh,oweverb,udget initiaelstimatseinctehientroductionotfhneon-inte executionriskasssociatedwiththe 201M6 TBPSproposalsT. hesienclude: • Wagebilpl ressures–Between2009/10and2012/13s,tronggrowthinthepublic-sectowr agebill increasedcompensationasasharoenfationaalndprov incianlon-interesstpendingS.alarieisnhealth, educationandpolicingar gerowingamt ortehan2pecrenitnreatlerm–ws elalbovteotaslpending growthT. hceurrentthree-yeawr agaegreemenctometsoanendin2017/18a,ndtheriepsotentiaflor thaessumptionasbouwt age-bilglrowtthcohangoencnaeewagreemenirtseached. • Infrastructuruenderspending–Nationaglovernmenstpendingoninfrastructurwe a5psecrenbtelow publishedinfrastructurebudgetisn2015/16T. hepatternwams orepronouncedinlocagl overnment andstate-ownedcompanies,whichspent81and9p3ecrentoftheirinfrastructurebudgets respectively.Underspendingstrainsexistinginfrastructure,accelerateswearandtear,andlimits service-deliverycapacity. • Exchangeratepressure–sThedepreciationotfherandplaceps ressureondepartmenttshapt rocure goodasndserviceisnforeigncurrencyI.nf owt elml anagedt,hirsiskmayshiftthecompositionof spendingfurthertowardsgoodsandservicesI.foneotfhedownsidescenariosconsideredinthis statemenmt aterialisess,harperrandepreciation mayplacevegnreateprressuroenbudgets. 54 2030/31 2028/29 2026/27 2024/25 2022/23 2020/21 2018/19 2016/17 Rbillion DomestibcondsForeigbnonds 120 100 80 60 40 20 0

FISCALRISKSTATEMENT Overthemediumtermp, olicyrisksaremainlyasso ciatedwithunanticipatedspendingrequestsI.n higheerducationf,oerxamplet,hMe TBPSprojectasdditionaflundingotfhepost-schooelducationand trainingsectorF. urthesrpendingdemandss,imilatroth wilpllacaedditionaplressuroenspendinlgimits. ostehahtavaeriseninthleasttwobudgectycles, Thesreisksit,fheymaterialisea,rme orleikelytochangtehceompositionosfpendingthanthreatenthe expenditureceilingD. epartmentstypicallyrespondtowagebilpl ressuresbymovingfundsfromnon-corgeoodasndservicesa,ndfromcapitabludgettsocompensationW. hilgeovernmenwt ilml aintainits expendituretargetsah, ighewr agebilml aycrowdourtesourcesavailablefocr omplementaryinputs, erodingthequalityosfervicedeliveryS. imilarlya, zeropecrenut niversity feeincreasein2018would likelryesulistanhifotrfesourcefsromotheprrioritietsowardhsigheerducation. Contingenat ndaccruedliabilityrisks Government’ms ajoerxplicictontingenltiabilitieasrietgsuaranteesw, hichstoodaRt 469.9billionatthe endof2015/16T. otagl uaranteeexposurewasR26b3illionatheendof2015/16b, ecauseseveral entitiehsadnoftullyusedtheiarvailablgeuarantefea cilitiesT. hleargesgtuaranteexposur–me ortehan R17b0illion–supportEs skom’csapitailnvestmenpt rogrammeA. nexposureoRf 20b0illionrelatetso theIPPsE. skomios bligedtopurchasepowefrromtheseindependenpt roduceros vea2r 0-yeapr eriod basedonapower-purchaseagreemenat pprovedbytheNationaEl nergyRegulatorofSouthAfrica. ShouldEskombuenablteodothisg,overnmenmt uspturchastehpeoweorEn skom’bsehalf. Themosrtecenrtecapitalisation–combinedwith improvedEskom’sliquidityandprofitabilityT. herisk regulatofrullyprovidefsoIrPPcostisntheEskom governancereformsandoperationarlecovery–has odf efaulwt iththeIPPguaranteeislowasthe tarifdfeterminationsT. hesefactorms itigatteherisk arisingfromthesgeuaranteesH. oweve riskobfotehxposures. Othekrecyontingenltiabilitryiskasraefsollows: rda,eteriorationinEskom’fsinanciaplositionwouldincreastehe • PassengeRr aiAl gencyoSf outhAfrica–ThefiscushascommittedR5b3illiontofundPRASA’s purchaseofnewrollingstockandsignallingequipment.TheAuditorGeneralandthePublic Protectohr avefoundweakexpenditurecontrolsa raisecsoncernthaPt RASAwilnlobtaeblteocomp ndcontracmt anagemenitnthips rogrammeT. his lettehperogrammoentimaendwithinbudgetI.n additionp,rojectedeclineisnPRASA’fsarreevenuaendridershipnumberrsaisceoncernasboutthe company’ssustainability. SouthAfricanNationalRoadsAgencyLimited–FiscalexposuretoSANRALdebtstoodat • R35billionasa3t 1March2016T. heguarantee waspuitnplacetosupportth expansionotfhe agency’tsolrloadps ortfolioT. henewtollingdispensationhabs eenimplementedfopr hase1otfhe GautengFreewayImprovemenPt rojectA.60pecrendt iscounwt asofferedtoroadusersbetween Novembe2r 015andMay2016onthesettlemenottfheoutstandingamountsE. -tolclollectionasnd auctionsarestilclloselymonitoredagainspt rojected collectionlevelstoensurerecoveryO. vetrhe mediumtermn, ationagl overnmenat ndtheGautengprovinciagl overnmenwt ilslupplemenet -toll revenueM. oregenerallyi,fgovernmentdoesnotproceedwithtollingtofundmajorfreeways, difficulttrade-offws ilnleetdboceonfrontedtaov oidaeterioratiointhneationarloandetwork. • SouthAfricanAirway–Gs overnmenhtaisssuedRa 19.b1illionguarantefeacilitytoSAAtoensure thceompanycancontinuteoperataegasoingconcer nT. hcearriecrontinuetsoposltossesT. heries currentlyaR14.b3illionexposureagainstthefacilityW. ithoutheguaranteesS, AAistechnically insolventA. newf,ull-strengthboardhasbeenappointedandtaskedwithreturningtheairlineto financialsustainability.Theboardhasalsobeen managemenptositions. taskedwithquicklyfillingvacantexecutive 55

2016MEDIUMTERMBUDGETPOLICYSTATEMENT • SouthAfricanPosOt ffice–Currentlyg, overnmenht asaR4.b4illionguaranteeexposuretothe SouthAfricanPosOt fficeA.newboardandCEOweraeppointeda,ndthceompanyhabseenablteo raisefundingtorepaycreditorsi,mplemenatturnar mitigattehpeossibilitoysftrikaection. oundplan dreachasettlemenwt ithlaboutro LandBankG– overnmenptrovidedthLe andBankwitRha 6.b6illiognuaranteien2014/15o,wf hich R5.3billionhabseendrawndownaas3t1March2016T. hgeuaranteheahselpedthbeankexpandits lendingby10pecrentin2015/16,despiteaweakoperatingenvironment,andchartapathto • stabilisationT. herelativelyshormt aturitieos f thebank’fsundingliabilitieasregraduallybecoming longerr,elievingpressureontheinstitution’csashflowsb, uttheydostilpl osemoderaterisktothe fiscus.Thebankisconductinganinternalreviewtoimproveoperationalefficiencyand developmentaelffectivenessL. enderhsavheighlightedthbeank’sstrongovernancaendrelationship witthhsehareholdearrseasontscoontinuseupportinigtfsundinpgrogramme. ThRe oadAccidenFt und–RAFliabilitieastthendoMf arch2016werreevisedupto • R15b5illion fromtheR13b2illionreportedinthe2016Budget.These liabilitiesareprojectedtogrowto R34b5illionin2019/20T. heRAFhabs eeninsolvenftoor ve3r 0yearsd, espitehavingadedicated revenuestreaminplacetosettleclaimsG. overnmenht ans oyt ettabledlegislationtocreateanew equitableandaffordablbeenefiat rrangementtoreplaceth feundV. ariouosptionesxisttoreducethe RAFcontingenltiabilityi,ncludingincreaseisnthRe AFfuellevyT. hneewreplacemenstchemwe ill bsetructuretdoensurseustainability. Governmenmt aintainistpsolicystanctehaatnyinterventiontosupporsttate-ownedcompaniems usbte deficint eutralE. ntitiesreceivingsupporftromgovernmenwt ilbl erequiredtoprovidesoundbusiness plansi,mprovgeovernancaendaddr esosperationailnefficiencies. Long-termfiscarlisks TheNationaTl reasuryregularlyupdateistlsong-termfiscaml odetlodeterminethesustainabilityoifts majosrociaslpendingcommitmentsI.ngeneralt,h ecurrenct ommitmentsappeasrustainableovetrhe longtermH. owevert,hesustainabilityofexistingprogrammesisheavilyinfluencedbychangesto demographiacnGd DPgrowthestimates. Changestotheleveal ndagestructureotfhepopulationhavesignificanitmplicationsfotrhecostsof sociapl rogrammesuchasociagl rantsP. opulation fewyearsT. heNationaDl evelopmenPt lan(NDP)ma estimatehs avechangedsignificantlyovetrhepast deuseofthemoderleleasedbytheActuarial SocietoySfouthAfricia2n011c,alculatinbagaspeopulationo5f0.6millionfo2r012T. h2e01C1 ensus estimatedthe2012populationa5t 1.m8 illionT. heNDPprojectedthepopulationwouldbebetween 58.2millionand61.m5 illionby2030H. owevert,helatesat ctuariapl rojectionsputthepopulationat 65millionin2030I. ngenerala,largerandolder spending. populationwillplacegreaterpressureonsocial Lowerlong-termGDPgrowthwouldmakethefinancingoflarge-scalenewpolicyproposalsmore difficultT. hceurrenlteveolsfpendingissustainabliefconomigcrowthreturntsoithsistoriacveragoef 3pecrentH. oweverig,frowthremainsstuckbelowp2ecrenotvetrhleongtermsa,tabldeebptathwill bdeifficulttsoustainatthceurrenltevelosefxpendituree,veinnfnoewpoliciynitiativeasrteaken. Ensuringfiscalsustainabilitywhileimplementingnewinitiativescurrentlyongovernment’sagenda wouldrequireasignificanat ccelerationoef conomic increasethestructurallevelsoftaxationw, ithra resourcefsromotheprriorities. Anotherlong-termriskstemsfrom unicipalfina maintenanceraisesthelong-termcosot rfeplacemen growthtoboosttaxreve nuep; olicymeasuresto tesraisedacrossalml ajortaxtypesa; nd/osrhifting nces.Insufficientspendi ngoninfrastructureand itnfrastructureormaintenancea, ndshortensthe 56

FISCALRISKSTATEMENT usefullifeocf apitaal ssetsF. urthermorew, eakmunicipaflinanciaml anagemenct reatesrisksfotrhe broadeprubliscectobrecausme unicipalitiedsonostettlteheifrinanciaolbligationosntimeAd. eclinien municipaol wn-revenuesourceswouldincreasetheirdependenceonfiscatlransfersw, ithdeleterious consequencefsosrervicdeeliveryT. omitigattehirsiskg,overnmenhtams adcehangetsothe infrastructurgerant toprioritisme aintenancaendstrengtheninfrastructurpelanningC. hangehsavbeeen municipal madetothe municipaslystemsimprovemengt rant toenhanceoperationaelfficiencyA. ndgovernment haisnitiaterdaeviewotfhme unicipaplensionssystem. Conclusion Thoeutlookfotrhpeeriodaheadsuggesttshaftiscal weaker-than-expectedeconomicperformanctehreaten riskieslevatedp,rimarily becaustehpeotentiaflor tsherevenufeorecastT. hoeutlookfocrontingent liabilitieisaslsosaourcoevfulne rabilityT. hme acroeconomiacndfiscal policieosutlinedinChapter2s and3arei,npartd, esignedtoreducetheserisks, achieved. andensurethatgovernment’sfiscaltargetsare 57

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Thipsagwe alsefbtlankintentionally. 58

Technicaal nnexure Introduction Thiasnnexurperesenttshbeudgeftrameworke,xpendit expenditurfeo2r016/1a7ntdhdeivisionorfevenue. Thebudgeftrameworkconsistostfhefiscaflramewo uroeutcomefso2r015/16m, id-yeaerstimateosf rkg,overnmenstpendingprioritiest,hedivisionof resourcebs etwee nationalp, rovinciaalndlocagl overnmenta,ndatabulationotfhemajocronditional grants.Theframeworkallowsnationaldepartments,provincesandmunicipalitiestopreparetheir detailedbudgetsforthefollowingyear.SouthA fricahasamulti-yearbudgetingprocess,sothe frameworkcovertshperesenftiscayleaarndthtehreseubsequenytears. Assumptionsfotrhema Thme acroeconomifcorecasctontainedinthis croeconomicforecast MediumTermBudgePt olicSytatement iusnderpinnedby theseotafssumptioncsontainedinTableT.1A. ssumptionrselatedtotheworldeconomyaresourced fromtheInternationaMl onetaryFund(IMF)C. ommod calculatedamas ovingmonthlayveragaeospposedtothe itypricesareinformedbyfuturescurvesa, nd spoctontracptricaepatarticulaproinitnime. DomestiicnvestmenatssumptionasrbeasedonapprovedinfrastructurexpenditurpelansF. oodinflation assumptionasrienformedbyvarious high-frequencyindicatorasndanalysis oufnderlyingfundamentals. TableTA.1ssumptionsunderpinningth emacroeconomicforecast2, 016–2019 1C. ombinedgrowthindexoSf outhAfrica'stop15tradingpartners(IMFWorldEconomicOutlookO, ctobe2r 016) 2S. ourceB: loombergfuturespriceson9Septembe2r 016 3N. ationaTl reasuryestimates SourceN: ationaTl reasury 59 20142015 Percentagechange (unlessotherwiseindicated) OPurtocjoemcteiosns 2016 2017 2018 2019 Globagl rowth 14.8 4.1 Commodityprices 2 Brenct rude(US$pebr arrel) 100 53 Gold(US$peor unce) 1266 1160 Platinum(US$peor unce) 1385 1055 Ironore(US$petron) 97 55 Coa(lUS$petron) 72 57 3.9 4.1 4.3 4.4 43 51 54 56 1272 1337 1352 1366 1015 1078 1086 1093 54 47 42 35 60 63 62 61 Inflation 3 Foodinflation 7.6 5.1 Investment3 Reapl ublicorporationinvestment 0.7 3.5 Reagl overnmenitnvestment 8.5 14.6 10.5 7.5 5.4 5.4 0.4 0.5 2.1 2.3 4.6 5.3 4.2 5.0

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Thefiscaflramework Thefiscalframeworksetsoutgovernment’srevenueprojections,spendingestimates,borrowing requirementsandassumptionsconcerningdebt-servicecosts.Theconsolidatedfiscalframework comprisetshemainbudgeta,ws elalspendingbyprovincess,ociaslecurityfundasndpublicentities financedfromownrevenue. Revenueoutcomesandrevisedestimates Therevenueoutcomefor2015/16,revisedestimatesfor2016/17andprojectionsfor2017/18are presentedinTablTe .2. TableTT.2otatlaxandconsolidatedbudgertevenue2, 015/16–2017/18 1I.ncludesintereswt itholdingtaxfrom2015/16onward 2C. onsistsmainlyopf remiumsandrevaluationprofitsondebttransactions 3S. outhernAfricanCustomsUnionagreement SourceN: ationaTl reasury Grosstaxrevenuecollectionsfo2r 015/16amountedtoR1.07trillionh, ighebr yR0.3billionthanthe 201B6 udgeet stimateV. alue-addedtax(VATr)ecordedanover-collectionoRf 3.b1illionin2015/16, mainlyarasesulotlfower-than-anticipatedVATrefundisnthleatteprarottfhyeearC. orporatiencome tax(CIT)recordedanover-colle ctionofR2.b2illion.Personalincometax(PIT)wastheworst-performingcategoryw, ithanunder-collectionoRf 3.b9illionl,edbylower-than-expectedpay-as-you-earn(PAYEr)eceipts. Revenuecollectionfsotrhefirsht alof2f 016/17havefallensharplybelowexpectationsm, ostlydueto shortfallsinPITV. ATperformancehaaslsobeensluggishl,argelyduetoweakdemandfodr omestic 60 2015/16 RbillionOutcome 2016/172017/18 BudgetRevised DeviatioEnsstimates Personsandindividuals3884.411.0 Companies119981.3.2 Value-addedtax238011.1.3 Dividendwithholdingtax1 25.224.2 Specificexciseduties3385.0.1 Fuellevy645.55.6 Customsduties544.06.3 Other52.448.5 Revenuemeasuresin2017Budget– – 428.5-12.5471.7 200.82.5211.9 293.3-7.9315.2 26.10.827.5 36.7-1.338.9 64.2-0.368.0 51.9-2.157.2 50.5-1.954.7 ––28.0 Grosstaxrevenue1070.0 1174.8 1152.0-22.81273.3 Non-taxrevenue265.76.3 owf hich: Minerarloyalties4.4 3.7 Receiptsfromfinanciatlransactions2 12.214.4 EstimateoSf ACUpayments3 -51.0 Provinces, ociasl ecurityfunds116425.3.7 andselectedpublicentities 31.14.531.7 4.80.45.2 14.72.514.6 -39.4-39.4-56.0– 157.3-5.1167.8 Consolidatedbudgertevenue1220.9 1324.3 1301.0-23.31416.9 Differencebetweenthemainandconsolidatedbudgets Government’sfinancesarepresentedintwowaysthathighlightdifferentaspectsofthebudget.Themain budgest howsalel xpenditurefinancedfromtheNationaRl evenueFundW. iththeexceptionodf irecct harges mandatedbyspecificlegislation,allexpenditureincurredagainsttheNationalRevenueFundneeds parliamentaryapprovalT. heconsolidatedbudget isawidercategoryotfhepublicfinancesI.itncludesthe mainbudgeta, swelal spendingfinancedfromtherevenuesraiseddirectlybyprovincess, ociasl ecurityfunds andpublicentitiesT. heserevenuesarenodt epositedintotheNationaRl evenueFundD. ifferenat spectsotfhe budgect anbepresentedaet i thetrhemainocr onsolidatedlevelF. oirnstancet,hemainbudgeitndicateshow muchmoneycentralgovernmenthastoborrowto financeitsoperations,whiletheconsolidatedbudget providesafullepr ictureogf ov ernment’simpacot ntheeconomy.

TECHNICALANNEXURE andimportedgoodsO. thermajortaxcategorieshavealsoshownsignsofweakeningb, uct orporate incomteaxperformedbettetrhaenxpected. RevisiontsonominaGl DPgrowthavbeeenrelatively smalclomparedwithth2e016Budgeetstimates. Howevert,hecompositionoGf DPgrowthhaschangedg: rossdomesticexpenditurehasbeenrevised downsharplyo, ffsebt yadownwardrevisiontoimpor tsT. heoveralelffecottfhihs abs eensignificant reductiontsoalml ajotraxbasesW. ithouatdditionapl olicymeasuresg, rostsaxrevenueips rojectedto falsl horot f2016BudgetargetsbyR22.b8illioninthecurrenyt earR, 36.2billionin2017/18a, nd R51.b9illioinn2018/19. Inresponset,h2e016MTBPSproposetsoraisaenadditionaRl 1b3illionin2017/18T. hiasddtsothteax increaseofR1b5illionin2017/18announcedinthe2016Budget.Intotal,therefore,thefiscal frameworkincludesadditionarlevenuemeasurestoraiseR2b8illionin2017/18andR1b5illionin 2018/19. TableT.3presentstheoutcomesandestimatesof receiptsandpaymentsfromfinanciatlransactions, whicahppeairtnh2e016AdjustedEstimateosNf ationaEl xpendituraepsarotdfepartmentarlevenue. Comparedwiththe2016Budgeet stimatest,otarlece increasebyR2.b5illiontoR14.b7illionH. igher iptsfromfinanciatlransactionsin2016/17will eceiptrsesulftrompremiumos ndebttransactionos f R3.5billion,mainlyfromtheissuancesofinflation-linkedbondsandbond-switchtransactions.In additionr,evaluationprofitosnforeign-currencytransactionasrRe b1illionlowetrhanbudgeteduteoa stronger-than-projectedexchangreateO. vetrhme edi umtermr,eceiptfsromfinanciatlransactionasrseet toincreasetoR14.6billionin2017/18beforedecreasingtoR10.1billionin2019/20T. heupward revisionims ainlyduteothceonsolidationogfovernment’fsoreign-currencyinvestmenatccountastthe ReservBe ankw, hichresultisn anincreasienrevaluatiopnrofitosn foreign-currenctyransactionsT. h is explainedingreatedr etaiilnthesectiononfinancingtheborrowingrequiremenbt elowI.n2016/17, paymentsfromfinancialtransactionsareR1.b1illionhigherthanthe2016Budgetestimateof R145millionm, ainlyduetopremiumps aidonforeign-currencyswitchtransactionsP. remiumos nloan transactionasnpdaymentfsofrinanciatlransactionasrneoptrojecteodvetrhme edium-term. TableTF.3inanciatlransactionsreceiptsandpayments2, 015/16–2019/20 – – – 4 – – 1P. remiumsreceivedoirncurredonnewloanissuesb, ondswitchandbuy-backtransactions 2R. evaluationprofitsolrossesongovernment'sforeignexchangedepositsattheReserveBank 3M. ainlypenaltiesonearlywithdrawaolrfetaibl ondsr,efundsoffeespaidonforeignloansandprofitsonscripltending 4R. ealisedprofits/lossesonGoldandForeignExchangeContingencyReserveAccounwt iththeReserveBank SourceN: ationaTl reasury 61 2015/16 Rmillion Outcome 2016/17 Budget Revised 2017/18 2018/19 2019/20 Medium-termestimates Receipts 14378 12165 Premiumsonloantransactions 15439– 35 Revaluationprofitsonforeign 188216695 currencytransactions 2 Other3 – 70 Payments -682 Premiumsonloantransactions 1-529 -103 DefrayaolGf FECRAlosses 4-153 14665 14578 00 – 11155 14578 10 – -145 -1221 -145 -187 11777 10138 – – 11777 10138 – – – – – – – Total 1369612020 13444 14578 11777 10138 Revisioninreceiptsfofrinanciatlransactions Achangeinthemanagementoforeign-currencyinvestmentaccountsresultsinhigherprojectedNational RevenueFundreceiptsT. hesereceiptsarenowestimatedaRt 15billionin2017/18R, 12billionin2018/19and R10billionin2019/20B. yusingdollarspurchasedwhentherandwa strongerr,evaluationprofitsarerealised ascashflowsintotheNationaRl evenueFundt,herebyreducingtheborrowingrequirementT. hereservesare replenishedbyissuingforeigndebtR. eplenishingthedollarsattheprevailingexchangerateincreasestherand bookvalueogf overnment’sforeignexchangeholdings.

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Assumptionsforevenueprojections Atthaeggregatleevelt,axrevenue projectionasrcealcula tedusingtaxbuoyancyandprojectedincreases innominaGl DPT. axbuoyancyistheratioofthegrowthofarevenuestreamtothegrowthofits underlyingtaxbasei,ncludingtheimpacot fann ouncedtaxpolicymeasuresF. orexamplet,hetax buoyancyfogr rosstaxrevenueof 1.07in2016/17meansthaftoer achpercentagepoinitncreasein nominaGl DPt,otaglrostsaxrevenuwe ilglrowby1.0p7ecrentT. hoeveraltlaxbuoyancyfogrrostsax revenuieesxpectetdioncreaste1o.4b32y017/18s,lowintgo1.10b2y019/20. Growthinthwe agbeillt,hteaxbasfeoPr ITh,abseenrevisedownbymortehanonpeercentagpeoint onaverageovetrhemediumtermU. singthelateswt agebilflorecastt,akingintoaccounltimitedfiscal dragrelieifn2016/17a,ndassumingbauoyancyoafbou 1t.45t,hsehortfalolnPITcollectionislsikely toamounttoR12.b5illionin2016/17A. neconomicontractioninthfeirsqtuarteor2f016ledtolower PITreceiptsandPITcollectionsfo2r 015/16wereR3.9 additiont,heaverageyear-on-yeaPr ITgrowthin requiretdaochievteh2e016Budgettarget. billionbelowthe2016Budgeet stimatesI.n thefirsttwoquarterso2f 016/17wasbelowtherate FortheyeartodateC, IThasperformedrobustlym, ainlydrivenbyhigherprovisionatlaxfromthe miningandquarryingsectorD. espittehseignificandtownwardrevisiontoneotperatingsurplu(sNOS), thetaxbasefoCr ITm, edium-sizedcompanieasrexpectedtocontinuedrivingthestrongperformance inCITin2016/17.ThebuoyancyofCITagainstNOSremainsrelativelyunchangedfromthe 201B6 udgeatnidasssumeda1t.0i32n016/17a,ndaveragin1g.0ovetrhme ediumterm. Followinglower-than-anticipatedVATrefundsath firsttwoquartersof2016/17,offsettinggross endo2f 015/16V, ATrefundsreboundedinthe VATcollections.BothdomesticandimportVAT collectionasrealsoshowingsluggishperformanceD. ownwardrevisiontsohouseholdconsumption(the taxbaseforVAT)overthemedium-termexpend itureframework(MTEF) periodreflectslower consumecr onfidenceh, ighinflationandinteresrtatess,lowingcredigt rowtha, ndweakemployment prospectsV. ATbuoyancyagainsftinahlouseholdconsumptioniasnticipateda0t .71in2016/17a,ndis settoremainaatbou1t.1b0etwee2n017/1t8o2019/20. TablTe .p4resenttshaessumptionusnderlyintghreevisedrevenuperojectionfso2r016/1t7o2019/20. TableTT.4axrevenueoutcomesp, rojectionsandassumptions2, 013/14–2019/20 1R. emunerationintheformanl on-agriculturesectorp, rivateandpublic SourceN: ationaTl reasury Mainbudgeet xpenditureceiling ThNe ationaTl reasuryintroducedth expenditurceeilinginth2e012BudgetT. haellocationms adoever theMTEFperiodprovideanagreed-uponupperlimiftromwhichdepartmentspreparebudgetsT. he expenditureceilingallowsgovernmentomanagedepartmentalspendinglevelsinthecontextofa constrainedfiscaflrameworkT. hfei gurefsotrhexpenditurceeilingdi ffesrlightlyfromthosfeomr ain 62 2013/142014/152015/16 RbillionOutcome 2016/17 Estimate 2017/182018/192019/20 Projections PersonaIlncometax353 310388429 Wagebill 1 1716856419312070 Buoyancy1.714.231.231.45 Corporateincometax185 177191201 Neot peratingsurplus101075231067119 Buoyancy2.314.82-6.891.03 Value-addedtax261 238281293 Finahl ouseholdexpenditure2321173924572608 Buoyancy1.612.361.220.71 Grosstaxrevenue986 900 1070152 NominaGl DP3638264340874381 Buoyancy1.416.171.471.07 472 230 1.30 212 181 1.00 315 2785 1.10 1273 4702 1.43 522577 24112616 1.301.25 225243 12551354 1.001.00 340367 29803197 1.101.10 13971522 50785490 1.221.10

TECHNICALANNEXURE budgent on-intereset xpenditureb, ecausesincelasyt eart,heceilinghasexcludedpaymentsthaat re directlfyinancebddyedicatedrevenufelowasnodthernsostubjecttpoolicoyversightT. hesienclude: • Paymentfsofrinanciaalssetfsinancebdtyhsealoeffinanciaalssets • Paymenttransactiontshaatrleinketdtohme anagemenotdfebt • Directchargesthatrelatetospecificpaymentsmadeintermsoflegislations, uchastheskills developmenltevy. ATs ablTe .s5howst,hexpenditurceeilinhgabseenrevisedowonvetrhneexttwoyears. 21 013/14–2019/20 TableTM.5ainbudget xpenditureceiling, /20 1N. on-interesst pendingfinancedfromNationaRl evenueFunde, xcludingskillsdevelopmenltevy, speciaal ppropriationsin2015/16foEr skomandNewDevelopmenBt ankd, ebmt anagement andGoldandForeignExchangeContingencyReserveAccounttransactions SourceN: ationaTl reasury Consolidatedframework TableT.6providems oredetailos ntheconsolidatedfiscaflrameworkoutlinedinChapte3rF. ollowing revisednominaGl DPestimatesl,owetraxrevenueprojectionasndprojectedunderspendingbynational departmentsin2016/17t,heconsolidatedbudgedt eficiitsforecasat3t .p4ecrenot Gf DPa, gainsat n estimatoe3f.2pecrenotGf DPinth2e01B6 udget. OvertheMTEFperiod,theconsolidatedbudgetde ficitnarrows,reaching2.p5ecrentofGDPin 2019/20T. hefiscaflrameworkallowfsomr oderategrowthinconsolidatednon-interesstpendingover thenexttwoyearsa, veraging7.p1ecrenitnnominatlermsandincreasingto7.p8ecrenitn2019/20. Thefastest-growingexpenditureiteminthecons olidatedframeworkbyeconomicclassification continuetsobeinterespt aymentsN. ominagl rowthininteresatndrenot nlandarexpectedtoaverage 1p0ecrenotvetrhMe TEFperiods,lowetrhatnh1e2.p1e crenrtecordedovetrhpeastthrefeiscaylears. Compensationaccountfsotrhelarges sthareocfurrenstpendingI.n2016/17c,ompensationiesxpected tomakeup40.p3ecrenot tfotacl urrenstpendingT. heconsolidatedwagebililncreasesaant ominal annuaalveragoe6f.p9ecrenotvetrhMe TEFperiod anatominarlatoe6f.p9ecrenotvetrhtehree-yeasrpendinpgeriod. G. oodasndservicebsudgetasrexpectedtogrow Currenttransfersandsubsidiesw, hichaccounfto3r 1.p5ecrenot cf onsolidatedcurrenstpendinga, re expectedtogrowby7.p4ecrenot vetrheMTEFperiodT. hisnominagl rowthrateislowetrhanthe 8.6pecrenrtecordeodvetrhpeastthreyeears. Thecurrenbt alanceshowsthegapbetweenrevenueandoperationasl pendingS. incethebudgeits operatedonacashandnoatccruabl asisd, epreciationins oitncludedinthecurrenbt alanceA.current surpluosRf 0.3billionwaaschievedin2015/16c,omparedtoaprojectedcurrendteficiotRf 7.1billion atthetimeotfhe2016BudgetI.n2016/17ac, onsolidatedcurrensturpluosRf 7.9billioniesxpected, andimprovestoR73.5billiono, 1r .p3ecrenot Gf DP in2019/20C. apitapl aymentsandtransfersare expectedtogrowbyanominaal n nuaal verageo5f .8pecrenot vetrheMTEFperiodA. sthedeficit narrowsinlinewithfiscaol bjectivest,hecapitaflinancingrequiremenwt ildl eclineto3.p6ecrenot f GDPin2019/20c,omparewd it3h.p8ecrenotGf DPitnhceurrenytear. 63 Rmillion 2013/142014/152015/162016/172017/182 018/192019 2014BudgeRt eview 935071 1014222 1091253 1 2015BudgeRt eview 1006905 1081214 1 2015MTBPS 1001789 1077527 1 2016BudgeRt eview 1001874 1076705 1 2016MTBPS 1074992 1 68284 52833 12 52833 12 52833 12 44353 12 5 086 5 086 1354422 4 086 1339422 29742 1323465 1435314

2016MEDIUMTERMBUDGETPOLICYSTATEMENT TableTC.6onsolidatedfiscaflramework2, 013/14–2019/20 2018/19 2019/20 284.4 276.6 1400.4 1376.7 1523.9 1474.4 1658.0 1584.5 -168.6 -176.0 -186.5 -199.5 -150.5 -147.1 -138.2 -139.0 301.0 451.5 297.0 1416.9 1564.0 1393.3 1537.9 1676.0 1487.5 1670.4 1809.4 1603.8 1I.ncludespaymentsfocrapitaal ssetsr,eceiptsfromsaleocf apitaal ssetsandcapitatlransfers 2T. ransactionsinfinanciaal ssetsandliabilitiesincludingnerteceiptsfromfinanciatlransactions 3A. lslpendingexcepftocronsolidatedinterespt ayments 4I.ncludesmainbudgedt ebt-servicecostsandinterespt aymentsoof thelrevelsogf overnment 5R. evenuelessnon-intereset xpenditure SourceN: ationaTl reasury Spendingongoodsandservices InDecember2013,governmentintroducedcost-con essentiagl oodasndservicess,uchacsonsultants, measuresl,inkedwithprocuremenrteformsandbudg havseuccessfullryeducedspendinognanumbeoriftems. tainmentmeasurestocurtailspendingonnon-travelc,ateringe,ntertainmenatndvenuehireT. hese erteductionsintroducedduringthesameperiod, TableT.7provideds etailossfpendingonselectedgoodasndservicesa,ndcapitaslpendingI.temosaf similanraturheavbeeengroupedintosummarcyategoriefsoerasoepfresentation. Totaslpendingongoodasndservicehsagsrownbyp2ecrenitnreatlermsinctehientroductionotfhe cost-containmenmt easuresm, ainlydrivenbystrongrowthinspendingonmaintenancoegfovernment infrastructuraendequipmentG. rowthiaslsodrivenbyspecifipcolicyprogrammelsiktehCe ommunity WorkProgramme. Spendingonthemaincost-containmenittemsi,ncludingtravealndsubsistencec,ateringe,ntertainment, venureentals,tationeryandprintingandconsultantsh,adseclinedinreatlermsinc2e013S. pendingon consultantfselbl1y2.6pecrenotvetrhpeeriod. Agencyandoutsourcedserviceshaveincreasedbroadl yinlinewithinflationT. hiscategoryincludes spendingonoutsourcednutritionasl ervicess, uchastheNationaSl chooNl utritionProgrammea, nd nutritionservicefsoirnmatesIa.tlsoincludems edicaalndsecuritypersonneelmployedthroughagency arrangements. 64 2013/14 2014/15 2015/162016/17 RbillionOutcome 2017/18 Estimate Medium-termestimates Operatingaccount Revenue1098923.8.0178.61 Currenpt ayments1006.51085.2178.21 Compensation40387..20472.8515.0 Goodsandservices174.1287.1190.9204.5 Interesat ndrenot nland109.6 121.2135.3154.5 Transfersandsubsidies314.3639.8379.3402.5 549.4 219.7 170.7 436.9 587.0629.7 234.6249.9 188.5205.6 464.3499.2 Currenbt alance-13.5-2.470.9.3 PercentageoGf DP-0.4%-0.1%0.0% 23.7 0.2% 49.573.5 0.5%1.0%1.3% Capitaal ccount Capitarleceipts1.3 0.20.30.1 Capitapl aymentsandtransfers133.3146.2164.6168.7 0.1 176.1 0.10.1 186.6199.6 Capitaflinancingrequirement1 -133.1-144.9-164.3 PercentageoGf DP-3.7%-3.8%-4.0% -3.8% -3.7%-3.7%-3.6% Financiatlransactions 2 9.180.9 11.710.3 Contingencyreserve–– ––6.0 11.2 8.87.0 10.020.0 Budgebt alance-135.7-137.5-152.2 PercentageoGf DP-3.7%-3.6%-3.7% -3.4% -3.1%-2.7%-2.5% Revenue1008.31099.61220.91 Expenditure1144.01237.11373.11 Non-intereset xpenditure 3 1034.4 115.81237.81 Interespt ayments 4 10192.61.2135.3154. 5170. 7188.5205.6 Primarybalance 5 -26.1-16.3-17.0 PercentageoGf DP-0.7%-0.4%-0.4% 243..06 0.1% 50.366.6 0.5%1.0%1.2%

TECHNICALANNEXURE GovernmenstpenRt 15.b7illiononcontractorsin2015/16T. hisrelatesmainlytothemaintenanceof infrastructureassetsi,ncludingroad sh, ospitalsandschoolsI. tincludespaymentsforlabourinthe CommunitWy orkProgrammew, hichagsrowbn1y4.p6ecrenotvetrhpeeriod. Propertypaymentisncludsependingrelatedtogovernmenatdministrativebuildingasndmaintenancoef officeaccommodationR. easlpendin growthinthiistemo3f .6pecrenitms ainlydrivenbymunicipal serviceasnpdaymentsa,ws elalbsuildingmaintenance. Includedinothegroodasndserviceasrietemssuchas foodfosroldierisnthDe e partmenotDf efencea,s wellascleaningmaterials,consumablesuppliesandclothinganduniformsinthedepartmentsof DefenceP,olicaenCd orrectionaSlervices. TableTS.7electeditemsogf oodsandservicesandcapitasl pending: nationaal ndprovinciagl overnment annuarleagl rowth SourceN: ationaTl reasury Financingtheborrowingrequiremenat ndnationadl ebot utlook Thegrossborrowingrequiremenct onsistsofthemainbudgebt alanceandmaturingdebtT. ablTe .8 showsthefinancingofthenationagl overnmennt ebt orrowingrequiremen–ttheamounnt eededto financethebudgedt eficifto2r 015/16r,evisedestimatesfo2r 016/17andprojectionsovetrheMTEF period.ThenetborrowingrequirementisprojectedtodecreasefromR16b5illionin2016/17to R16b1illioinn2017/18b,eforiencreasintgRo 169.b6illioinn2019/20. 65 2012/132015/16 ActualPreliminary Expenditureoutcome Rmillion Average 2012/13-2015/16 Traveal ndsubsistence97397290-5.1% Cateringe, ntertainmenat ndvenuerental19193166-5.0% Consultants54692020-12.6% Stationeryandprinting30276702-2.1% Administrativeandoperationapl ayments13417728882.9% owf hich: Leasesobf uildingsandinfrastructure7378 113409.3% Leasesomf achineryandequipment2343 2454-3.8% Medicineandmedicasl upplies 14918883362.2% Learnear ndteachesr uppormt aterial 4382711-1.0% Fuelo, ial ndgas 856627 3.2% Agencyandoutsourcedservices11495480.5% Contractors 10514564688.1% owf hich: Maintenanceandrepaiirnfrastructure406358687.0% Maintenanceandrepaier quipment 403249091.1% Casuallabourers279 80134.2% Laboratoryservices37477705 2.5% Propertypayments14018845383.6% owf hich: Municipaslervicesandpayments60607609 2.2% Contractedmaintenance 486332063.6% Guardsandsecurity304386882.7% Computesr ervices10575416.1% Othegr oodsandservices19426648414.9% Total12523615 6422.0%

2016MEDIUMTERMBUDGETPOLICYSTATEMENT TableTF.8inancingonf ationagl overnmenbt orrowingrequirement2, 015/16–2019/20 200 000 116266 174000 13150 18100 342 165024 16095 1A.negativenumberreflectsadeficit 2N. eotlfoansissuedandredeemedinswitchtransactions 3A.negativechangeindicatesanincreaseincashbalances SourceN: ationaTl reasury In2016/17n, eitssuanceinshort-termloanswililncreasebyR15billiontoR4b0illiontofinancethe highebr udgedt eficiatndtocovetrheloweor peningcashbalanceO. vetrhemedium-terms,hort-term loanws ilalveragRe 25billiopnefriscaylear. Thebond-switchprogramme–exchangingshort-term folronger-termdeb–thasprogressedwelal nd wilclontinuteoeasreefinancingpressureostnargeteadreaosdfomestiacndforeignloarnedemptions. In2016/17f,oreign-currencyissuancewililncreasebyUS$2.b1illion(R2b9illion)toUS$3.6billion (R5b2illion)comparedwiththe2016Budgeet stima teA. totaol fUS$1.23billion(R18billion)was raisedinApri2l016tocovetrhpeostponed2015/16issuanceF. oreignloanosUf S$b3illionweriessued inSeptembe2r 016m, adeupoUf S$2.3billio newmoneyandUS$710millioninbondexchangesO. f thUe S$2.b3illionU, S$1.b2illionwilbluesedtocovegrovernment’fsoreign-exchangceommitmentisn 2016/17T. hebalancewilbleusedaps refundingto manageforeignloanredemptionosUf S$3.b3illion i2n019/20O. vetrhme ediumtermU, S$6billiown ilbliessueidtnhienternationaclapitaml arkets. TableT.9showtshetrajectoryotfhegrowthi nationagl overnmendt ebsttockT. hekeydriverisnthe nominailncreaseindebsttockaretheweakerfis growtahndinflatioanlsoaddetdtohwe eakedrebt-to-GDPratio. capl ositionandtheweakerandL. owereconomic 66 2015/16 Rmillion Outcome 2016/17 2017 Budget Revised /18 2018/19 2019/20 Medium-termestimates Mainbudgebt alance 1-169415 -15 6342 -165024 -160956 -162298 -169556 Financing Domesticshort-termloans(net) 13075 25000 Treasurybills 250720502 CorporationfoPr ublicDeposits 5823 – Domesticlong-termloans(net) 146172 116 Markeltoans(gross) 176795 174 Loansissuedfosrwitches 2 -2479 - Redemptions -28144 -5 Foreignloans(net) -3879 78 Markeltoans(gross) – Loansissuedfosrwitches 2 – Redemptions(including -3879 -1 revaluationolfoans) Changeincashandothebr alances 3140734371 40000 25000 40000 25000 – – 718 – – 7800 -57016 -49497 11 36264 25744 23205 50958 30540 1111 – – 5394 -15805 -4796 -27506 -21291 -212 25000 26000 25000 26000 – – 3 130130 129372 0 180500 185500 – – -50370 -56128 28379 -17238 30860 31320 – – -2481 -48558 11 31422 Total 1694156 6 162298 169556

TECHNICALANNEXURE TableTT.9otanl ationagl overnmendt ebt2, 015/16–2019/20 112.2 -114.2 -112.2 145.1 -158.5 -125.9 Totagl rossloandebt 49.4 44.2 Totanl eltoandebt 1F. orwardestimatesarebasedonprojectionsoef xchangeandinflationrates 2N. eltoandebitscalculatedwithdueaccounottfhecashbalancesotfheNationaRl evenueFund (bankbalancesogf overnment'saccounwt iththeReserveBankandcommerciabl anks) 3F. oreigncurrencydepositsbookvaluerevaluedaftorwardestimatesoef xchangerates SourceN: ationaTl reasury Governmendt ebetxposuretoshort-termrefinancing riskremainlsowT. heshareoTf reasurybillasas percentageoftotadl omesticdebht asremainedbelow12pecrenst inceMarch2016T. hisisdueto continuedissuanceintolonger-datedfundinginstrumentsF. undingthroughTreasurybillsremained relativelyconstant.FromMarch2016toSeptember2016,thestockofTreasurybillsgrewby 8.p6ecrentI.nflation-linkeddebgt rewby9.1pecrentE. xposuretoinflationriskremainedfairlyhigh duringthpeeriode;vensoi,nflation-linkedebatpsercentagoetfotadlomestidcebrtemainedbelowthe 2p5ecrenmt arkT. herandappreciatedfrom$/R14.7athetimeofthe2016Budgeto$/R13.9in Septemberr,educingovernment’fsoreign-currenceyxposure. 1 TableT.1P0erformanceagainsst trategicportfolioriskbenchmarks 20-25% 13.2 12.6 14.8 14.9 14.6 1G. overnmenut sesthebest-practicebenchmarksotfheWorldBank 2E. xcludesborrowingfromtheCorporationfoPr ublicDeposits SourceN: ationaTl reasury 2015/16outcomesand2016 /17mid-yeaer stimates Mainbudgeet xpenditurewasR1.2t4rillionin2015/16R, 6.b5illionlowerthantheadjustedbudget estimateU. nderspendingin2015/16includedR2.b3illionintechnicaaldjustmenttsotransfeprayments, suchasthewithholdingoef quita blesharetransferstomunicipalitiesI.tfheseareexcludedfromthe 67 Benchmarkdescription Rangeolrimits Benchmark March2016 S eptembe2r 016 Short-termdebmt aturingin12months(Treasurybillsa) sa sharetooftadl omesticdebt2 Long-termdebmt aturingin5yearsasashareofixed-rateand inflation-linkedbonds Inflation-linkedbondsasashareotfotadl omesticdebt Foreigndebat sashareotfotagl overnmendt ebt Weightedterm-to-maturityofixed-ratebondsplusTreasury bills(inyears) Weightedterm-to-maturityoifnflation-linkedbonds(inyears) Weightedterm-to-maturityotfotagl overnmendt eb(tinyears)14.2 15.0% 25.0% 15.0% 10-14 14-17 – 11.8% 18.6% 23.0% 10.1% 11.2% 14.9% 23.8% 9.3% Asa3t 1March 2015/16 Rbillion Outcome 2016/17 2017/1 Budget Revised 8 2018/19 2019/20 Medium-termestimates Domesticdebt Grossloandebt 11819.32003. Cashbalances -112.2 Neltoandebt 21707.11891. 7 2008.1 2194. -112.2 -112.2 - 5 1895.9 2082. 8 2386.8 2580.3 6 2272.6 2468.1 Foreigndebt Grossloandebt 1129299.6.9 Cashbalances 3-102.1 Neltoandebt 21119.97.5 238.3 271.7 -118.0 -129.8 - 108.5 126.6 303.0 290.2 144.5 164.3 Totagl rossloandebt 2018.9 233. Totanl eltoandebt 1804.6 2003. 6 2246.4 2466. 4 2004.4 2209. 5 2689.8 2870.5 2 2417.1 2632.4 AspercentageoGf DP: Foreigndebat spercentageogf ross 10.3 9.9 loandebt 50.951.3 52. 45.7 45.8 10.6 11. 5 53.0 52.3 47.0 47.6 47.9 0 11.3 10.1

2016MEDIUMTERMBUDGETPOLICYSTATEMENT analysisu, nderspendingoncoredepartmentaalllocationasmountedtoR4.7billionw, hichilsowetrhan levelsofunderspendingrecordedineachofthepast fiveyearsE. venwithinthecurrentighftiscal environments,omdeepartmentasndprogrammeusnderspendconsistentlyA.ntationaglovernmenltevel, thme ainareaosufnderspendingwertehceapitaplrogr Thesemainlyconsistedocfonditionaglranttransfers spenbtmy unicipalities. ammaendtransfertsothelrevelosgfovernment. toprovinceasndrefundoscfonditionaglrantnsot Provinciael xpenditurein2015/16wasR486.2billiono, 9r 8.5pecrenot tfhe2015adjustedestimate. ExpenditurebyprovinceswasR257.b2illionin 49.p7ecrenottfheoriginabl udgeftotrheyearP. rovi thefirstsixmonthsof2016/17,representing ncehs aveprimaryresponsibilitytodelivesrocial servicesi,ncludingbasiceducationandhealthC. ompensationoef mployeesisthelargesctategoryof expendituriepnrovinciabludgetsa,ccountinfgo6r0.2pecrenotsfpendinignthfeirshtalof2f016/17. TableT.N1a1tionaal ndprovinciael xpenditure2: 015/16outcomesand2016/17 yeaer stimates 1P. rovinceswiltlableadjustedestimatesduringNovembe2r 016 SourceN: ationaTl reasury AdjustedEstimatesoNf ationaEl xpenditure Detailsoftherevisednationalspendingallocationsaresetoutinthe2016AdjustedEstimatesof NationalExpenditurei,ncludingrolloversofunspentfundsfrom2015/16;approvedallocationsfor unforeseeableandunavoidableexpenditure;theappropriationofexpenditureearmarkedinthe 201B6 udgeSt peechforfutureallocationo; thershiftsandadjustmentsa; nddeclaredunspenftunds. Revisepdrovinciaalppropriationws ilblteableidnprovinciallegislaturebsefortehenodtfh2e016/17. Highlightsotfheadjustedestimatesfo2r 016/17 • R1.3billionidneclaredunderspendinbgdyepartments 68 2015/16 Original Adjusted Preliminary Over(-)/ budget estimate outcome under(+) Rbillion 2016/17 Original Adjusted Actual budget estimate1 spending Apritlo September NationaRl evenueFund 1217.31251.1 1244.6 13126.15 Expenditure Debt-servicecosts 12162.74.9 128.8 -0.9 147.7 Provinciael quitableshare 3823.786.5 386.5 410–.7 Othedr irect harges 3208.47 29.6 0.8 32.5 Nationavl otes 67790.65.4 699.8 6.6 721.1 owf hich: Compensationoef mployees 1371.638.0 136.4 1.6 Transfersandsubsidies 8728.676.5 870.8 5.7 Paymentsfocrapital ssets 161.78.2 18.2 -1.0 Provisionaal llocationnot – – – – assignedtovotes Contingencyreserve – 5.0 – – Nationagl overnment -3.0 – -3-3.0.0 projectedunderspending Locagl overnment -1.2 – -1-1.2.2 repaymenttothe NationaRl evenueFund 1312.9 643.7 147.7 71.7 410.7 205.3 31.4 12.5 723.1 354.2 148.35 72.3 9303.70 459.7 14.614.4 5.6 – 0.3 – – 6.0 – – – Provinciael xpenditure 48439.36.8 486.2 7.6 517.2 owf hich: Compensationoef mployees 2912.792.5 288.8 3.7 313.4 Transfersandsubsidies 7606.10 69.2 0.9 69.5 Paymentsfocrapital ssets 353.64.4 36.4 0.0 36.1 n/a 257.2 n/a 154.8 n/a 38.8 n/a 14.4

TECHNICALANNEXURE • AfurtheRr b3illioinpnrojecteudnderspending • R290.7millionfoparackagedmobildeesalinationplanttobuesedincoastaalreaasndR50.6million fowr atetrankeringandstorag feodrrought-strickenareas • R950millionfotrheDepartmenot IfnternationaRl elationsandCooperationtocompensatefotrhe differencienforecasftoreign-currencyexchangreateasnadctuarlateasttimoepfayment • R212milliotnoprocurfeoddefroarnimafleedfodrrought-strickeanreas • R71.3millionfotrheElectoraCl ommissionfosralariesandequipmenwt arehousingcostsincurred dutetohsehiftinogtfhdeatoetfh2e016locaglovernmenetlectionfsromMatyoAugus2t016 • R1.1billioninself-financingex penditurbeyvarioudsepartments. Keyrevisionstoprovinciaal llocations • • KwaZulu-NataiglsranterdaolloveorRf 275.7millioonnthe provinciarloadms aintenancgerant. fotrherehabilitationosfchoolsdamaged nationaslchoonlutritionprogramme. Fundsareallocatedtothe educationinfrastructuregrant ovetrhceoursoetfhyeearI.nadditionf,undasraeddedtothe Somefundsfromthe schooilnfrastructurebacklogsgrant areconvertedtothedirect education infrastructuregrantfotrheWesternCapeasthegrant’simplementingagentM. oreoverf,undsare reprioritisedin-yeafrromthe schooilnfrastructurebacklogsgrant tothe nationaslchoonl utrition programmgeranttoalleviatfeoodinflationpressures. • Thdeirectnationahlealthinsurancgerant wilbliencreasedbyRm9 illiontofundthsetrengthening ohfealthinformationsystemisnKwaZulu-Nataalnd WesternCapeT. h ifsundedbythsehiftingof fundesarmarkedfotrhediagnosticrelatedgroupontheNationaDl epartmenotHf ealth’bs udgetA. furtheRr 1m0 illionwilbl ereprioritisedfromtheindirect nationahl ealthinsurancegrant h, uman papillomvairuvsaccinecsomponenttothheealtphrofessionalcsontractincgomponent. • ThereiaRs 212millionadditionto comprehensiveagriculturesupporpt rogrammegrant toprovide droughrtelietfofarmersT. hidsroughrtelieafdditi onwilbliendirectlyadministeredonbehaloftfhe provincebstyhDe epartmenotAf gricultureF,orestrayndFisheries. Revisionstolocagl overnmenat llocations • Tofundthperovisionoefmergencywatesrupplietsodrought-affectedcommunitiesR, 50.6millionis addetdothiendirect watesrerviceisnfrastructurgerant . Divisionorfevenue Thelargessthareoftheconsolidatedfiscaflrame financedfromtheNationaRl evenueFundT. hemainbu workisthemainbudgetm, adeupofalslpending dgeitsharedbetween nationalp, rovinciaalnd locagl overnmentT. hissectionoutlinestheproposedsubstantiaal djustmentstoprovinciaal ndlocal governmenatllocationnsoatlreaddyiscussediCn hapte4r. 69

2016MEDIUMTERMBUDGETPOLICYSTATEMENT TableT.1M2ainbudgeftramework2, 013/14–2019/20 6/17 2017/ 165.2 1240.41331.4 1434.8 SourceN: ationaTl reasury OvertheMTEFperiod,nationaldepartmentsareallocated47.p5ecrentofavailablenon-interest expenditurep, rovinces43.4pecrentandlocalgovernment9.1pecrentM. edium-termallocationsto nationadl epartmentsincreasebyanaverageannuarlate o5f .p3ecren(texcludingalilndirecgt rants), provinciarlesourceasndlocaglovernmenatllocationbsy7.p5ecrenatndp8ecrenrtespectivelyF. aster growthinallocationtsoprovinciaalndlocaglovernmenrteflecttshperioritpylacedonfront-linseervices suchashealthe,ducationandbasicservicesa, swell wagesa,ndhighebruleklectricitayndwatecrosts. ThperoposecdhangetsothdeivisioonrfevenuaeroeutlinedinTablTe .13. TableT.1C3hangestodivisionorfevenue2, 016/17–2018/19 astherisingcosot tfheseservicesduetohigher 7/18 2018/19 1A. mountsmaybeshiftedbetweendirecat ndindirecgt rantsto provincesandlocagl overnmenbt efore2017Budgeitstabled SourceN: ationaTl reasury Changestoprovinciaal llocations Provincescontinuetofacefundingchallengesov ertheMTEFperiodthatstemfromhigher compensationcostasasresulottfhe2015public-sectowr agesettlementT. omakeresourceasvailable forfiscacl onsolidationandtofundurgengt overn proposedtothperovinciafliscaflramework. menpt rioritiesr,eductionsandreprioritisationare 70 2016/17201 RbillionRevised Medium-term Changestobaseline National locations-0.80.2 owf hich: Indirecgt rantstoprovinces12.60.0 Indirecgt rantstolocal-0.10.2 - government 1 Provincial locations-4.20.7 Equitableshare-0.5 – Conditionagl rants -3.70.7-Locagl overnmenat llocations-0.80.0 5.2 – 0.1 1.5 2.5 0.9 0.2 Total-5.90.9 6.8 2013/14 2014/15 2015/16201 RbillionOutcome Revised 18 2018/192019/20 Medium-termestimates Divisionoaf vailablefunds Nationadl epartments45439.40.0546.1559.8 Provinces441309..65471.4500.5 Equitableshare33365.59.9386.5410.7 Conditionagl rants7794.6.184.989.8 Locagl overnment8872.6.698.4104.9 Equitableshare4319.6.049.452.6 Generafluellevysharing10.29.610.711.2 withmetropolitan municipalities Conditionagl rants3354.8.038.341.1 589.7 538.1 441.3 96.8 112.5 57.0 11.8 43.7 631.3681.5 578.6621.0 471.5506.1 107.1114.9 121.5132.3 62.769.3 12.513.2 46.349.8 Total1091476.1.61115.81 Percentageshares Nationadl epartments 47.9% 48.2% 48.9% Provinces 43.4% 43.2% 42.2% Locagl overnment 8.7% 8.6% 8.8% 48.0% 43.0% 9.0% 47.5%47.4%47.5% 43.4%43.5%43.3% 9.1%9.1%9.2%

TECHNICALANNEXURE Fotrhe2017MTEFperiodt,hedatausedintheprovinciaelquitableshareformulawilbl eupdatedfor populationflowsusingStatisticsSouthAfrica’s2016Mid-YearPopulationEstimatesr;egionaGl DP usingStatisticSs outhAfrica’esstimatese;nrolmendtatsauppliedbythDe epartmenotBf asiEc ducation; patienltoaddatafromtheDepartmenot Hf ealtha; nddataonthenumbeor pf eoplewithmedicaal id coveursingthSetatisticSsouthAfrica’ Gs eneraHl ouseholSdurveeystimator. TheprovincialequitableshareisreducedbyR500millionin2017/18asacontributiontofiscal consolidationT. oaddresps ressureisneducationandhealthan, eRt 7.b2illioniasddedin2018/19and 2019/20T. hisshouldenabltehaeppointmenotafdditionatleachertsoreduccelasssizese,nsurdeelivery olfearnearntdeachesruppormt aterialsa,nadlleviatgerowingpressureistnhheealthsector. The nationaslchoonl utritionprogrammegrant as,peciapl urposegranttoprovidelearnerisnquintile 1-3schooldasailynutritioums ealh,acsomuendeirncreasingpressurdeuteosoaringcosotffoodT. he grantreceivesadditionalamountsofR120million,R130millionandR14m0 illionoverthethree respectiveyearsotfhespendingperiodaheadA.new courot rdefrotrheprovisionoefducationtolearners effecit2n017/18. Anewgranftosrociawl orkercsometsoeffecitn2017 grantthawt ilalllowprovincestoaccedetothe withprofoundintellectuadl isabilitiecsomeisnto /18T. higsraniftsunded througrhaeprioritisation fromwithinthesociadl evelopmenst ectorI.nspiteofimprovingnumbersoftrainedsociawl orkers throughabursaryschemet,herehasbeenagapinfundingtoensurethattrainedsociawl orkersare employedwheretheyareneededI.nordetroemploy861sociawl orkersa,llocationosRf 181.m3 illion, R196.8millionanRd 212.m7 illioanrperoposeodvetrhMe TEFyears. The comprehensivHe IVA, IDSandTBgrant iusnlikeltyboiempacteadiisotsnoetfhfeastest-antdreatedpatientisbselowthtearget. The mathss, cienceandtechnologygrant 2018/19a,istlowlgyaintsractioinonutcomes. The earlychildhooddevelopmengt rant irseducedby0.5p7ecrentT. hpeerformancoetfhigsrant growingrantistnhseystemandthneumbeortfested isreducedbyR20millionin2017/18andR2m1 illionin isreducedbyR4.2millionandR4.3millionin2017/18and 2018/19respectivelyT. hefundsarereallocatedtowardsthemanagemenat ndmonitoringotfhisnew grantw, hichcomeisntoeffecitn2017/1 8I.nthaertasnd culturseectort,hecommunitlyibrarsyervices granitrseducedbyR20.m8 illionin2017/18R, 23.m4 illion2018/19S. pendingonthigs ranht abs een sluggish. Anumbeorpfrovinciailnfrastructurgerantws ilallsobreeducedT. he educationinfrastructurgerantand the healtfhacilitryevitalisatiognrant arreeducebdsyimilaarmountisn2017/1a8n2d018/19. Forthe2016MTEFt,he educationinfrastructuregrant wasmergedwiththe schooilnfrastructure backloggsrant H. owevert,herwe ernaeumbeorrfemnanptroj ectisnthpeipelineA. rasesultt,hleatter educatioinnfrastructurgerant granhtabseenextendedfoyarearw, i thR2.6billionredirectedfromthe . The humansettlementsdevelopmengt rant 201M7 TEFO. tfhiasmountR, 600millionirseallocat hasatotaal mounot fR660millionreprioritisedoverthe edtothSe ociaHl ousingRegulatoryAuthorityto promoteconsolidatedsubsidiesforsociahl ousingT. hebalancewilflundtheHousingDevelopment Agency’scatalyticprojectsoperations.Aspartoffiscalconsolidation,the developmengt rant wilbl ereducedbyR871millionin2017/18andbyR946.6millionin2018/19T. his granctontinuetsuonderperformE. fficienciynterventionws ilhleltpiomprovreesults. humansettlements Savingswerefoundfromthe comprehensiveagriculturesupporpt rogrammegrant asomeprovinces failedtomeetthegranctonditionsa,ndsubmibt usinessplansi,nordetroaccesgs ranftundsS. avings foundfromthegranatmountedtoR6m0 illionin2017/18andR5m0 illionin2018/19I.nadditiont,he grantisfurtherreducedbyR32.8millioninboth2017/18and2018/19,whiletherolesand responsibilitiesokf eystakeholdersinthesectoar r eclarifiedfobr etteor utcomesA.smalal mounits reprioritisedfromthe expandepdubliwc orkpsrogrammientegrategdrant fo2r017/1a8nd2018/19. 71

2016MEDIUMTERMBUDGETPOLICYSTATEMENT TablTe .14showsthepreliminaryequitableshareallocationstoeachprovinceovetrheMTEFperiod. Thesneumberms acyhangaersevisiontsdoatianformingthfeormulhaavyeettbofeinalised. TableT.1P4rovinciael quitableshare2, 016/17–2019/20 SourceN: ationaTl reasury Revisionstolocagl overnmenat llocations Allocationstolocagl overnmenstupportthedeliveryofreebasicservicesfopr ooresidentsandthe provisionoifnfrastructurteoeradicatbeacklogsT. h 2e016CommunitySurveyconfirmedthaatccestso servicecsontinuetsoexpandthanktsothesgerant-fundedprogrammesb,ustignificanbtacklogrsemain. Thenumbeorhf ouseholdcsontinuetsogrowrapidlyw, ithgrowthexceedingp3ecrenayt eafroerach otfhleasftivyeearsG. rowthinhouseholdhsabseenfastesitncitieasndtownsT. hceostosbfulkwater andelectricitypurchasesalsocontinue toincreasefastetrhaninflationT. ooffsetthesecospt ressures, fundws ilblaeddedtothleocaglovernmenetquitablseharien2018/19and2019/20thawt ilrlesulitnit growingaatnaverageannuarlateoafbovep9ecrenot vetrheMTEFT. helocagl overnmenetquitable sharfeormulwa ilallsbouepdatedwith2016CommunitSyurvedyata. Tomakeresourcesavailableforfiscalconsolidationandtofundurgentpriorities,reductionsare proposedonfourlocagl overnmenct onditionagl rantst:he publictranspornt etworkgrant t,he water serviceisnfrastructuregrant t,hemunicipailnfrastructuregrantandthe urbansettlementds evelopment grantT. hirseflectams ixouf rbanandruragl rantsA. f continuetsgorowbaylteasp5tecrenpteyreaorvetrh2e01M7 TEFperiod. Thresemalaldjustmentasraelsoproposedthaatffect tetrheproposedreductio nse,achotfhesegrants locaglovernmenctonditionaglrantsF. undws ilble reprioritisedfromthe expandedpublicworkps rogrammeintegratedgranttomunicipalities tofundthe expandedmandateotfheCommissionfoCr onciliationM, ediationandArbitrationF. undswilallsobe reprioritisedfromtheindirect integratednationael lectrificationprogramme(Eskomg) rant m, ainlyto fundthemanagemenot nf ucleawr asteI.nthe indirect regionabl ulkinfrastructuregrant managemenatgencies. outetrwoyearsotfheMTEFs,malal mountsfromthe wilbl ereprioritisedtoaugmenftundingfowr atecratchment TheNationalTreasurycontinuestoleadareview ofinfrastructureconditionalgrantstolocal governmentT. hirseviewhaaslreadyresultedinthemergeorsfeveraclonditionagl rantasndthetrend towardsgreategr ranctonsolidationisexpectedto continueovetrheMTEFA.shifotfundfsromthe integrated national electrification programme (municipal) grant for projects in metropolitan municipalitiestothe urbansettlementsdevelopmengt rant in2017/18istilbl eingdiscussedwiththe oordinationotfhedeliveryoef lectrificationwith tesasierT. hreeviewiaslsoworkingtointroduce departmentsinvolvedT. hishifctouldimprovethec othebrasiscerviceasndmaktehceo-fundingopfrojec performanceincentivesforurbaninfrastructuregrantsa, swelal sanewdispensationforlargen, on-metropolitancitietshabt etterrespondtobuiletnvi ronmencthallengeasndgrowthopportunitiesG. rant rulehsavaelreadybeenchangedtoallowgranttsofundthreefurbishmenotifnfrastructuret;hreulews ill breefinedtoencouragbeudgetingforroutinme aintenance. 72 2016/17 Rmillion 2017/182018/192019/20 EasternCape58060 FreeState22995 Gauteng79600 KwaZulu-Natal87898 Limpopo48709 Mpumalanga33450 NorthernCape10863 NorthWest28062 WesternCape41062 661661874870961 262284552228165 9308366043100227 9979437157106841 553581966059371 384386098241214 125101712013418 324370333034857 474454427051049 Total441406139391 457015612024

TECHNICALANNEXURE TableT.1E5xpenditurebyvote2, 015/16and2016/17 Administration 00 00 – – 8 1308725 643723 1T. he2015/16financiayl eanr umberswereadjustedtoincludefunctionshifts 2T. heauditedoutcomefoPr arliamenitsconvertedfromaccruatlocashA. mendmentstoParliamentsb’ udgeat redeterminedindep nationagl overnment’sbudgept rocessesinaccordancewiththeFinanciaMl anagemenotPf arliamenat ndProvinciaLl egislatur 3N. ationaRl evenueFundpaymentspreviouslyclassifiedasextraordinarypayments SourceN: ationaTl reasury endentlyotfhe esAct2, 009asamended 73 Rmillion 2015/161 2016/17 MainAdjustedPreliminaryOver(-)/ budgetbudgetoutcomeUnder(+) MainAdjusted Actual budgetbudgetspending Apritlo September 1ThePresidency5417064679500 2Parliament 2 156157941694-991660 3Communication12811291128831345 4CooperativeGovernanceandTraditionaAl ffairs6931470815680982718729 5HomeAffairs6451 7349734637167 6InternationaRl elationsandCooperation56996511645-1345889 7NationaTl reasury26957 28726286913528471 8PlanningM, onitoringandEvaluation718 7547495828 9PublicEnterprises2 3206372326043274 10PublicServiceandAdministration837 8488417770 11PublicWorks6411 63126281316529 12StatisticsSouthAfrica245 2323274502489 13Women188971881197 14BasicEducation21511 21286207964902 270 15HigheEr ducationandTraining4193842029419438549188 16Health36468 361993598521438563 17SociaDl evelopment13816913789413640614881489 18CorrectionaSl ervices20618 2058920589– 21577 19DefenceandMilitaryVeterans4457945088450721747170 20IndependenPt oliceInvestigativeDirectorate235 2352341246 21JusticeandConstitutionaDl evelopment1498415011149723916050 22OfficeotfheChieJf usticeandJudicial78734276816865 23Police76377 7672176721–80985 24AgricultureF, orestryandFisheries63836409640186333 25EconomicDevelopment8868842675 26Energy7482726871421267545 27EnvironmentaAl ffairs5948 5943593856430 28Labour268727042612922848 29MineraRl esources1619 16391638–1669 30ScienceandTechnology7482 74667437297429 31SmalBl usinessDevelopment103 1281099291325 32TelecommunicationsandPostaSl ervices1413140513001052417 33Tourism180017941777172010 34TradeandIndustry9594 949894722610328 35Transport53357 536155332129456015 36Watear ndSanitation16447157471555719015245 37ArtsandCulture392038263762644071 38HumanSettlements30943 305433003550930691 39RuraDl evelopmenat ndLandReform9380919791187910124 40Sporat ndRecreationSouthAfrica989 98198011029 490239 1660– 1350667 947302227905 8156483 68393153 2847115620 798434 268118 780395 65133256 25381284 19796 2241311712 4918833508 3859718912 3814793372718 2158010994 4723622626 242135 160417892 874390 8098538922 6515370 675341 75514667 64252709 28431406 1669918 74295102 1318618 24171379 20101007 103904540 562862 534 1 5257371 40631976 3069613030 101244310 1027486 Totaal ppropriationbyvote679498706374699778659772 1 Plus: Direcct hargesagainsttheNationaRl evenue Fund Presidenat ndDeputyPresidenst alary(The66 6–6 Presidency) Membersr'emuneration (Parliament)2 50530344063530 Debt-servicecosts(NationaTl reasury)126440127902128796-89414 7 Provinciael quitableshare(NationaTl reasury)382673386500386500– 410699 Generafluellevysharingwithmetropolitan10659 1065910659–11224 municipalities(NationaTl reasury) NationaRl evenueFundpayments(National681221682–145 Treasury)3 Skillslevyandsectoer ducationandtraining14690 158001515664417640 authorities(HigheEr ducationandTraining) Magistratess' alaries(JusticeandConstitutional1881813117221092040 Development) Judgess' alarie(Os fficeotfheChieJf usticeand878474888-14920 JudiciaAl dministration) InternationaOl iPl ollutionCompensationFund–– ––– (Transport) 48723132354222 63 530– 2014768971684 410699205349 112243741 1221231 154627128 2010887 950477 2– Totadl irecct hargesagainsttheNational537847 544756544848-925909 RevenueFund Provisionaal llocationnoat ssignedtovotes–––– Contingencyreserve5000 – ––6000 Nationagl overnmenpt rojectedunderspending-3000 ––-3000–-30 Locagl overnmenrtepaymenttotheNational-1200––-1200–-12 RevenueFund 23589793289500 – 267– –– Total1222345124693012446252304 131833

2016MEDIUMTERMBUDGETPOLICYSTATEMENT TableT.1E6xpenditurebyprovince2, 015/16and2016/17 960 8115 653 10757 793 5700 SourceN: ationaTl reasury 74 Rmillion 2015/16 2016/17 MainAdjustedPreliminaryOver(-)/Deviation budget budgetoutcomeUnder(+)from adjusted budget MainActual budgetspending Apritlo September EasternCape649956631165172 1391.7%69 Education29438 29162284267362.5%31003 Health18496 1902418944800.4%20244 SociaDl evelopment22312262225480.3%2384 Othefrunctions1483015864155493152.0%15 FreeState2937529855294314241.4%30829 Education11538 11815114873282.8%12060 Health8675 87288694340.4%9049 SociaDl evelopment102010181003151.5%1145 Othefrunctions814182948247470.6%8576 Gauteng95391 9704294799 2432.3%103 Education36044 36853362975561.5%39069 Health34175 35337346037342.1%37408 SociaDl evelopment396439973942551.4%4235 Othefrunctions2120820855199578984.3%22 KwaZulu-Natal1019611050001043516500.6%109006 Education42142 43163428882750.6%45464 Health32982 3397034111 -141-0.4%36579 SociaDl evelopment263027132614993.6%2778 Othefrunctions2420725154247384161.7%24185 Limpopo52728 53889529729171.7%56969 Education25285 25265251181470.6%27172 Health14754 1550215432700.4%16371 SociaDl evelopment153816091586231.5%1634 Othefrunctions1115211514108366785.9%11 Mpumalanga38702 39691392904011.0%41301 Education16857 1716417098650.4%17917 Health9996 1016410080840.8%10642 SociaDl evelopment129312951271241.9%1455 Othefrunctions1055611069108412282.1%11288 NorthernCape1416114688145031851.3%14850 Education5083 51275101260.5%5439 Health4074 42294168601.4%4198 SociaDl evelopment71702071460.9%774 Othefrunctions429446124520922.0%4440 NorthWest3422434983341628202.3%36229 Education13432 13520130904293.2%14331 Health8904 920090431571.7%9461 SociaDl evelopment133413161289272.1%1415 Othefrunctions1055410947107402071.9%11022 WesternCape5205952350515038471.6%55048 Education17745 17899176372621.5%19247 Health18813 19041187373041.6%19983 SociaDl evelopment18981899189270.4%1961 Othefrunctions1360413511132372742.0%13856 59134405 14772 10297 1221 15829 6354 4388 535 4552 36551873 19445 19579 2092 55524 23488 19374 1259 11403 27929 12556 8859 814 20352 8903 5420 644 5386 7494 2767 2140 353 2233 17370 6733 4954 615 5067 26452 9465 9538 1042 6407 Total483597493809486185 76251.5%517 Education197565199967197143 28241.4%211 Health150869155194153812 13810.9%163 SociaDl evelopment1661816829165642641.6%17781 Othefrunctions118544121820118665 31562.6%123 189257228 702104482 93484550 8576 77259620

Glossary Adjustmentesstimate PresentationtoParliamentoftheamendmentstobemadetothe appropriationvsoteidnthme ainbudgeftotrhyeear. TheapprovalbyParliamentofspendingfromtheNational RevenueFundo, br yaprovinciallegislaturefromtheProvincial RevenuFeund. Appropriation Anincreaseintheoveralplriceof time. Asummarystatemenotafltlhetran countrwy i threesottfhwe orl assetosveasrpecificperiodof Asseptricienflation sactionotfheresidentosaf dovepararticulatrimpeeriod. Balancoepfayments Reforms developed by the Basel Committee on Banking Supervisiontostrengthentheregulation,supervisionandrisk managemenottfhbeankinsgector. Theinitialallocationsusedduringthebudgetprocess,derived fromthpereviouysear’fsorwardestimates. ThedifferencebetweenexpenditureandrevenueI.fexpenditure exceedrsevenuet,hbeudgeitisndeficitIt.fhreeversietsrueii,ts insurplus. ThJeun2e016referenduminwhichBritishcitizenvsotedtoleave thEe uropeaUn nion. Thedeteriorationofcapitalduetothelackofinvestmentin maintenance. BaseIlII Baseline Budgebtalance Brexit Capitaelrosion Alargeoutflowofinvestmentsfromacountryinresponseto heightenedeconomicp,oliticaolprolicyrisk. Capitafllight Capitafllow Aflowoifnvestmentisnandouotcafountry. Conditionaglrants Allocationsomf oneyfromonesphereogf overnmenttoanother, conditionaol ncertainservicesbeingdeliveredoor ncompliance withspecifierdequirements. Totael xpenditurebynationaal ndprovinciagl overnments, ocial securityfundsandselectedpublicentitiesi,ncludingtransfersto municipalitiesb, usinessesorotheer ntitiesS. eealso expenditure. Themainmeasureoifnflationc,hartingthepricemovementosaf baskeotcfonsumegroodasndservices. Expenditureongoodsandservicesi,ncludingsalariesw, hichare consumedwithisanhorpterioodtfim–uesuallyaear. Consolidated governmenetxpenditure mainbudget Consumeprriciendex(CPI) Consumptionexpenditure Anamounsteatsideb,untoatllocatedinadvancet,oaccommodate Contingencryeserve changestotheeconomicenvironm spendinpgressures. Ameasureofthechangeinpri entandtomeetunforeseen Corienflation celevetlhaet xcludestemporary shockasndrepresenttshleong-rutnrenodtfhpericlevel. 75

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Countercyclicafliscaplolicy Policythaht astheoppositeeffecot neconomicactivitytothat causedbythbeusinescsycles,uchasslowingspendingrowthina boomperiodanadcceleratingspendinigranecession. Anindicatoortfheriskodf efault byaborroweortrheriskinesosaf Credirtating financiailnstrumentG. radessuchasAAAB, aa2andDaregiven, signifyingthextenot tfheborrower’scapacitytomeeittsfinancial obligationostrhperobabilitythatthvealuoetfhfeinanciailnstrument wilblreealisedS.eaelso ratingagency . Crowding-in Increasoepfrivatienvestmenatrasesulotgfovernmenstpending. Crowding-out Afalilpnrivatienvestmenotcronsumptionarasesulotifncreased governmenetxpenditure. Thedifferencebetweentotaelxportasndimportsi,ncludingservice Currenatccoun(totfhe balancoepfayments) paymentsandreceipts,interest, accounctanbiendeficiotsrurplusS.eaelso dividendsandtransfers.This tradbealance. Thedifferencebetweenrevenueandcurrentexpenditure,which consistsofcompensationofemployeesg, oodsandservicesa, nd interesatndrenotlnand. Thceosotifnteresotgnovernmendtebt. Repaymenottfhperincipaalnadnoyutstandinignteresotbanond. Areductiointnhvealuoeffixecdapitaalrasesulotwf eaarndteaorr redundancy. Areductiointnhexternavlaluoecafurrency. Thaellocatioonffundbsetweenationalp,rovinci alnldocal governmenatrsequirebdtyhCe onstitution. Thceosotafanlternativfeorgonteopursucaeertaianction. Anincentivme eanttoencouragtehcereatioonjfobfsoyrouthbsy allowingemployertscolaimraeductioinnemployeest’ax. Thaellocatioonrfevenutenoationalp,rovinciaalndlocal governmenatrsequirebdtyhCe onstitution. Currenbtalance Debt-servicceost Debrtedemption Depreciation(capital) Depreciation(exchangreate) Divisionorfevenue Economicost Employmenttaxincentive Equitablsehare Externailmbalance Anexcessivelpyositivoenrega tivceurrenatccounbtalance, reflectinganexcesosdreficiotdfomestiicnvestmenotvedromestic savings. Financiaalccoun(tof thbealancoef payments) Financiaalnd Fiscal Commission Financiaylear Astatemenotaflflinanciatlransa ctionbs etweenacountryandthe resot ftheworldi,ncludingportfolioandfixedinvestmenftlows, andmovementisn foreignreserves. AnindependentbodyestablishedintermsoftheConstitutionto makerecommendationstoParliamentandprovinciallegislatures abouftinanciailssueasffectintghtehresephereosgfovernment. The12monthsaccordingtowhichcompaniesandorganisations budgeatndaccountG. overnment’fsinanciaylearrunfsrom1April t3oM1 arch. Thteendencoyifnflationandearninggsrowthtopusthaxpayerisnto highetrabxrackets. Policoytnaxations,pendinagndborrowingbgyovernment. Fiscadlrag Fiscaplolicy 76

GLOSSARY Thaebilitoygafovernment’bsudgettporovidaedditionarlesources withoujteopardisingfiscaslustainability. Determinationocfurrencyexchangreatebsymarkeftorces. Theacquisitionoflong-termbusinessinterestsinanothercountry, usualliynvolvinmg anagement,echnologayndfinanciaplarticipation. Fiscaslpace Flexiblexchangreate Foreigndirecitnvestment GDPinflation Ameasureofthetotalincreasein UnlikeCPiInflationG, DPinflation pricesinthewholeeconomy. includeps riceincreaseisngoods thatareexportedandintermediategoodssuchasmachines,but excludeismportegdoods. AReservBe ankaccounttharteflectistlsosseasndprofitosnholdings Goldandforeign exchangaeccount offoreigncurrencyandgoldreserv dollaerxchangreataentdhgeolpdrice. esd, rivenbychangeisntherand-Grosdsomestic produc(tGDP) Grosfsixed capitaflormation Headlinienflation Ameasureoftotalnationaloutputi,ncomeandexpenditureinthe economy. Theadditiontoacountry’fsixedcapitasltockoveasrpecificperiod, beforperovisionfodrepreciation. Ameasuroetfhiencreasienpricle shocktsotheconomys,uch vetlhaitncludetsemporaryprice aosne-timpericcehanges. Integratedfinancial managemenstystem (IFMSp)roject Independent poweprroducer Indirecgtrant Aprojectoreviewu, pgradeandintegrategovernment’sfinancial managemenitnformatiotnechnologsyystems. Aprivate-sectoprroduceorpfowefrotrhneationaglrid. Agrantallowinganationaldepartmentoperformafunctionon behalofpafrovincoemr unicipality N. ofundasrteransferredb,utthe end-productofthegrant,suchasinfrastructurebuilt,isgenerally transferretdporovinciaolmr unicipaolwnership. Anincreasietnhgeeneralleveolpfrices. Amonetarypolicyframeworkintendedtoachievpericsetabilityover acertainperiodotfimeT. heReserveBankandgovernmenatgreeon taargertatoerrangoeifnflationtbome aintained. Theratioofemployedandunemployedworkers(thelabourforce) relativtetohwe orkingagpeopulation. Inflation Inflationtargeting Laboufrorcpearticipation Nationaglovernmenetxpendituraend transfertsoprovinciaalndlocal Mainbudgeetxpenditure governmenftinancedfromtheNationaRl evenueFunde,xcluding revenuesandspendingrelatedtosocialsecurityfunds,extra-budgetary institutions and provincial own revenue. See also consolidategdovernmenetxpenditure Thecommitteeresponsibleforevalua . tingthebudgestubmissionsof Medium-term ExpenditurCe ommittee Medium-term expenditurferamework (MTEF) nationadlepartmentasndrecommendinagllocations. Thethree-yeasrpendingplanosnf ationaalndprovinciagl overnments publishedatthteimoetfhBe udget. 77

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Medium-term strategifcramework Monetarypolicy Thefive-yearstrategyofgovernme term. ntcoincidingwiththeelectoral Theactiontsakenbyacountry’ms onetaryauthority(e.gt.heReserve Bank)n,ormallfyocuseadroundmonesyupplaynidnteresrtates. Thteotasltockomf oneiyanneconomy. Monesyupply Nationabludget TheprojectedrevenueandexpenditureflowingthroughtheNational RevenuefundI. tdoesnotincludespendingbyprovincesorlocal governmenftromtheiorwrnevenues. Anationasltrategtyeoliminatpeovertayndreducienequality. NationaDl evelopmenPt lan (NDP) Thceonsolidatedaccounotnfationaglovernmenitntowhichaltlaxes, NationaRl evenuFe und feeasndchargecsollectedbythe departmentarlevenume usbtpeaid. SouthAfricanRevenuSe ervicaend Neatsseptosition Nominaelxchangreate Thteotavlaluoecafompany’asssetms inuistlsiabilities. Thecurrentrateofexchangebetweentherandandforeign currencies. Totaelxpenditurbegyovernmenltesdsebt-servicceosts. Thedifferencebetweentotalrevenueandnon-interestexpenditure. Whenrevenuexceednson-interesetxpenditurteheriesasurplus. Non-interesetxpenditurbegyovernment. Thaegriculturaalndmininsgectorostfheconomy. CreditprovidedtotheprivatesectorbybanksT. hisincludesall loansc,redictardbalanceasnldeases. Ameasuroetfhaemounotofutpugteneratedfromeveryuniotifnput ovearperiodotfimeT. ypicallyusedtomeasurechangesinlabour efficiency. Whenacountryrestrictsinternationaltradetoprotectdomestic industries. Non-interesetxpenditure Primarydeficit/surplus Primaryexpenditure Primarsyector Private-sectocrredit extension Productivity Protectionism Publiecntities Companiesa, genciesf, undsandacco untsthatarefullyorpartly ownebdgyovernmenotprubliacuthoritieasnrdegulatedblyaw. Acontractuaalrrangemenitnwhicpharivatpeartyperformpsarotaf governmenftunctionandassumetsheassociatedrisksI.nreturnt,he privatpeartyreceivefasebeasedopnredefinepderformancceriteria. Theconsolidatedcashborrowingrequiremenot gf eneragl overnment andnon-financiaplubliecnterprises. Public-private partnership(PPP) Public-sector borrowing requirement Purchasinmg anagers’ index(PMI) Ratingagency Acompositeindexmeasuringthechangeinmanufacturingactivity comparedwiththperevioums onth. Acompanythaetvaluatetsheability ocfountrieosor thebr orrowers tohonourtheirdebtobligations.Creditratingsareusedby internationailnvestorasisndicationosfovereignriskS. eaelso rating. credit Ameasureoftherateofexchange weightedaverageofSouthAfrica’ adjustedfoprricterends. oftherandrelativetoatrade-stradingpartners’currencies, Reaelffectivexchange rate 78

GLOSSARY Reaelxpenditure Expenditurme easuredinconstanptri inflation. cesi,.ea.ftetrakingaccounotf Reailnteresrtate Revaluationgain/loss Thleeveolifnteresatftetrakingaccounotifnflation. Thedifferencebetweenthevalueoaforeigncurrencydeposiftrom theorigina(lhistoricalr)atetoex rate. ecutionoaftradebasedonthespot Repurchas(erepor)ate Reserve(sforeign exchange) Rollover Threataewt hicthhRe eservBe anlkendtsocommerciablanks. Holdingosfforeigenxchangee,ithebrtyhRe eservBe ankonlyo,bry thRe eservBe anakndomestibcankinignstitutions. Fundnsostpendturingagivenfinanciayleatrhaftlowintothefollowing year’bsudget. Theprocessofremovingtheseasonalvolatility(monthlyor quarterly)fromatimeseries.Thisprovidesameasureofthe underlyingtrendinthedataA. nnualisedt:oexpressarateasiift weraepplieodveornyeear. Sociablenefitasvailablteaolilndividualsf,undedwholloyprartlbyy thsetate. Anagreementhaat llowsfortheunrestrictedflowofgoodsand services,andasharingofcustomsandexciserevenue,between SouthAfricaB, otswanaL, esothoN, amibiandSwaziland. A regional intergovernmental organisation that promotes Seasonallaydjusted andannualised Sociawl age SouthernAfrican CustomUs nion(SACU) agreement SouthernAfrican Development Community(SADC) Sovereigndebt Speciaelconomizcone collaboration, economic integrat throughouStouthernAfrica. Debitssuedbgayovernment. ion and technical cooperation Adesignatedareawhereinfrastructureandincentivesareprovided toclustersofbusinessestoencourageprivateinvestmentand employmengtrowth. Supply-sidceonstraints Asituationwhereacountry’sprodu withrisingdemand. ctivecapacitycannokt eepup Switchauction Auctiontseoxchangbeondtsomanagreefinancingrisokirmprove tradability. Threatiotfhgerowtohrafevenusetreamtothgerowtohifts underlyingtabxase. Tabxuoyancy Termostfrade Tradbealance Anindexmeasuringthreatiof exporptricetsoimporptrices. Thme onetarryecorodcafountry’nseitmportasndexportospfhysical merchandiseS.eaelso currenatccount. Afixed-termcontracftotrhperocur bymortehaonngeovernmendtepartment. emenotgfoodosrervicenseeded Transversatlermcontract Short-termgovernmendtebitnstrumenttshaytieldnointeresbtuatre issuedadatiscountM. aturitievsarfyromondeaty1om2 onths. Abudgedteficicnombinationwitdhaeficiotnthceurrenatccount. An approach to organising financial sector regulation and supervisioninvolvingtworegulatorsO. niersesponsiblfeoernsuring financiasl ervicesfirmsseltlheirproductsinanappropriateway. Treasurybills Twindeficit Twinpeaks Theotherisresponsi bleforensuri ngfinancialfirmsremain financiallsyoundanadrgeenerallpyrudent. 79

2016MEDIUMTERMBUDGETPOLICYSTATEMENT Undercapitalisation Uniltaboucrosts Lackosfufficienftund(scapital) toconducdtay-to-daoyperations. Thceosotlfaboupreurniotofutputc,alculatebddyividingaverage wagebspyroductivit(youtpuptewr orkeprehrour). Unsecuredlending Aloanthaintsobtackeodsrecured thleender’rsisk. byanytypoecfollateratloreduce Yield Afinanciarleturnoirnteresptaitdbouyerosgfovernmenbtonds. 80