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Province of KwaZulu-Natal Address by B.F. Scott � MEC for Finance
The Adjustments Estimate � 2017/18
A. Economic Review and outlook and the Fiscal Implications
Madam Speaker, honourable Members of the Provincial Legislature, colleagues, people of KwaZulu-Natal, ladies and gentlemen, last month the Honourable Finance Minister, Malusi Gigaba delivered his brutally honest maiden Medium Term Budget Policy Statement. It was clear in his candid speech that the country is faced with many challenges, which include a poor performing economy, a growing budget deficit, a projected decline in tax revenue, the threat of further credit rating downgrades and a high unemployment rate.
If these challenges are not properly managed, they could lead to South Africa sliding further into non-investment (junk) credit rating status and even seeking an International Monetary Fund (IMF) bailout.
As a country, we thus need to follow from Jackson Brown, Jr, the American author, who once said, I quote, The best preparation for tomorrow is doing your best today. Hence borrowing from his words we, therefore, need to take decisive actions and make hard choices now to ensure a better tomorrow.
As you may be aware, the economy of the country is expected to grow at 0.7 per cent this year, before accelerating slowly to 1.1 per cent in 2018. The subdued economic performance follows the technical recession from which the economy has since emerged, and the credit rating downgrades earlier in 2017. In KZN, economic growth is now expected at 0.5 per cent this year and 0.9 per cent in 2018 and, needless to say, this is far below the growth targets in the NDP, as well as in our PGDS.
Ladies and gentlemen, given the sluggish economic performance in the country, the debt and debt-service costs are projected to rise significantly over the next three to four years. National Treasury forecasts an increase in the debt-to-gross domestic product (GDP) ratio to 60 per cent by the 2020/21 fiscal year. This ratio was 48.3 per cent in 1993/94.
As demonstrated by the National Minister of Finance, the budget deficit would widen to 4.3 per cent of GDP in the current financial year, far higher than the target of 3.1 per cent projected in February this year.
The gross national debt is projected to reach 61 per cent of GDP by 2022, while debt-service costs will remain the fastest-growing category of public-sector expenditure over the next three years, crowding out the much needed social and economic spending.
The Medium Term Budget Policy Statement shows that the budget expenditure ceiling, as was introduced in the 2014 fiscal year, has been breached by an amount of R3.9 billion for the first time this year.
For the first time, since the 2009 global financial crisis, there is an under-collection of R50.8 billion in tax revenue. With lower economic growth and rising unemployment, which is currently at 27.7 per cent, the outlook remains challenging with regard to tax collections, negatively affecting resources available for government spending.
According to the latest data from Statistics South Africa, the number of unemployed people rose to 6.21 million in the third quarter of this year. The high unemployment rate in the country, especially among the youth, is commonly raised by credit rating agencies as a major setback to South Africa’s economic growth prospects. Needless to say, this is a ticking time bomb for our country.
It is partly this harsh reality that Minister Gigaba was candid in admitting that economic growth is a real challenge, and getting growth going will be about the only thing that can boost government’s revenue and save the country from its fiscal shortfalls and the looming downgrades by rating agencies.
As indicated by Wendell Erdman Berry, an American prolific author, I quote, We do need a new economy, but one that is founded on prudence and care, on saving and conserving, not on excess and waste. An economy based on waste is inherently and hopelessly violent, and war is its inevitable by-product. We need a peaceable economy.”
Consequences of downgrade to junk
Madam Speaker, as you may be aware, we are waiting for the Moody’s and Standard & Poor Global credit rating outcomes tomorrow (24 November 2017). The notable and material deterioration in SA’s fiscal position might result in the 90 per cent of debt issued in Rand being downgraded to non-investment grade, with potential capital outflows ensuing as a consequence.
Moody’s is the only one of the big three rating agencies to still rate SA one notch above junk. If any of these rating agencies cut their ‘local debt’ ratings, the government’s $125 billion stock of Rand-denominated debt will no longer be eligible for the Citi World Government Bond Index (WGBI).
This would lead to large amounts of capital flowing out of SA’s bond markets as investors move to anticipate the junking of SA’s domestic bonds, putting pressure on the Rand exchange rate. Currently, South Africa is the only African government bond market to be incorporated into the index.
Madam Speaker, it thus goes without saying that the fiscal path presented in the Medium Term Budget Policy Statement cannot be sustained. It is for this very same reason that the national government has set up a task team to deal with the fiscal challenges facing the country. The task team is led by the Minister of Finance and will report to the President of the country, Mr Jacob Zuma. The goal of this focused and select team is to come up with the actions needed to restore the sustainability of fiscal policy, and which will be put forward in the February 2018 budget.
Nobody trips over mountains. It is the small pebble that causes you to stumble. Pass all the pebbles in your path and you will find you have crossed the mountain � Author Unknown.
B. Proposed Adjustments
Section 31 of the PFMA determines that provinces must table an Adjustments Budget annually, and that this must be tabled within 30 days of the national Adjustments Budget being tabled. Adjustments are made to the Main Appropriation in terms of Section 31 of the PFMA. These adjustments include the appropriation of funds that have become available to the Province, the shifting of funds between and within Votes, the utilisation of savings under the main division within a Vote for the defrayment of excess expenditure under another main division within the same Vote referred to as virements, approved roll-overs for those departments who could not spend the entire amount voted by the Legislature in that particular year, to name a few.
Provincial Treasury has held various bilateral meetings with departments and public entities over the last few months to assess in-year spending patterns, as well as to discuss any spending pressures that may have arisen since the Main Budget was tabled in March 2017. Due to the tight fiscal position, the province was able to accommodate only a few additional funding requests.
B.1. Financing of the Adjustments Budget
The province continues to remain cash positive as has been the case since May 2010. Provincial Treasury continues to closely monitor the bank balances, as well as the spending pressures projected by departments in-year. The cost-cutting measures continue to be implemented with vigour. All these factors resulted in the province ending the previous year with a positive Net Financial Position and this is, therefore, the source of the bulk of the allocations being made in this Adjustments Budget.
This Adjustments Budget deals with a number of additional allocations, equitable share and conditional grant roll-overs, the movement of funds between departments, the suspension of funds from this year’s budget to be allocated back in the new financial year, as well as instances where Legislature approval is required for the change in purpose where funds were specifically and exclusively allocated, among others.
Source: Government of South Africa
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PRETORIA � Two men aged 40 and 52 were arrested at the The Palazzo Montecasino Hotel, Fourways, on Wednesday in a sting operation led by the Hawks’ South African Narcotics Enforcement Bureau (SANEB) together with Crime Intelligence.
The arrest was part of a months of investigation after the SANEB members received a tipoff about the suspects activity. The operation involved a confidential informant who conducted a buy and members swooped on the two. The drugs were found inside the car behind the back seats inside a concealed compartment.
The two are expected to appear today at the Randburg Magistrate Court on charges s of drug dealing.
Source: South African Police Service
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Minister Tokozile Xasa: Joint SADC Environment, Natural Resources, Aquaculture and Fisheries and Tourism meetingOn
Meeting of the joint SADC Ministers Responsible for Environment and Natural Resources, Aquaculture and Fisheries and Tourism meeting, Pretoria
Honourable Ministers responsible for Environment, Natural Resources, Aquaculture and Fisheries and Tourism,
Your Excellency Dr Thembinkosi Mhlongo, SADC Deputy Executive Secretary for Regional Integration;
SADC Secretariat Staff;
Ladies and gentlemen;
On behalf of President Jacob Zuma I would like to welcome you to South Africa’s capital city of Tshwane.
I hope that amidst our busy schedule, you will take the time to see more of this historic city and experience the warm hospitality for which we as South Africans are known.
We have convened here to discuss issues critical to the management and development of our region’s natural resources, fisheries and tourism sectors � and to discuss how best to accelerate the implementation of relevant and SADC-wide programmes to conserve our natural resources, enhance the quality of our environment, and to support livelihoods of the people of our region.
All of this necessitates that SADC Secretariat and governance structures are strengthened, especially in the areas of environment and natural resource management.
We are mindful that maintaining and sustaining our respective natural resource bases, all the while striving to eradicate extreme poverty is among the cornerstones of the Post-2015 Sustainable Development Agenda, encapsulated in the Sustainable Development Goals. (SDG’s)
As you will know, South Africa assumed the chair of SADC at the 37th Summit of Heads of State and Government meeting held in Tshwane in August 2017. South Africa’s theme for the Chairmanship of SADC is Partnering with the Private Sector in Developing Industry and Regional Value Chains.
As we continue to engage at different levels, we should always be mindful of The SADC We Want. This is the expression of our desire and aspirations to create a prosperous, integrated region.
This will best be realized through tackling the priorities espoused in the various frameworks and strategies such as the Regional Indicative Strategic Development Plan (2015-2020) and the Strategic Indicative Plan of the Organ (SIPO II).
These strategies are linked to important SADC pillars to accelerate regional political and economic integration. These are, respectively: industrialisation and market integration, infrastructure development, peace and security.
Our Heads of State and governments are expecting us to provide leadership with regard to SADC’s regional integration agenda, the implementation of the revised Regional Indicative Strategic Development Plan (RISDP) as well the SADC Industrialisation Strategy and Action Plan.
We all strive to attain this despite extremely trying economic times. The economic performance of SADC Member States has been on a downward trend since the global economic crisis in 2009, which continued into 2016.
Climate change has been identified as one of the key contributors to continuing economic weakening, as floods and droughts affect inflation due to food shortages.
Fiscal accounts have been negatively affected, as Member States increase expenditure for relief and humanitarian purposes and on the rehabilitation of damaged infrastructure.
Ladies and Gentlemen,
South Africa remains nevertheless confident that we, as a region can contribute meaningfully to the SADC Developmental and Regional Integration agenda.
This can be done by leveraging the natural synergies that exist between and within the environmental, natural resource management, aquaculture and fisheries, and tourism sectors.
I wish to briefly highlight a few key areas that we will be engaged with during this meeting.
Biodiversity and ecosystems continue to play an important role in meeting the developmental objectives of our region. The biodiversity economy has grown in importance in recent years as it contributes significantly to the growth of gross domestic product and employment in all countries.
Similarly, the wildlife economy has become a fundamental economic activity and plays a key role in infrastructure building, competitiveness and trade facilitation.
We know, however, that the threat posed by the transnational illicit trade in wildlife threatens to undermine our successes.
One of the most important outcomes of CITES COP 17 that we hosted in South Africa last year was the collective agreement by Parties that we have to work together to promote and support a legal, well-regulated trade in wildlife, whilst at the same time combating poaching and the trafficking of wildlife and wildlife products within and out of our region.
In this regard, the implementation of Protocol on Wildlife Conservation and Law Enforcement and the Law Enforcement and Anti-poaching (LEAP) strategy implementation is a strategic priority for us all.
We must turn the tide on illegal wildlife trade as a matter of urgency otherwise it will continue to undermine the goals that underpin our region’s economic aspirations.
The sustainable use of our natural resources isn’t just a conservation imperative; it plays a role in economic growth and development, job creation and the alleviation of poverty especially in our rural areas.
Our people depend on healthy ecosystems and sufficient natural resources to support their livelihoods �and the trade in illegally obtained resources undermines our efforts. As SADC Member States we need to employ sufficiently trained conservation and enforcement officials to conserve and protect the region’s natural resources, not only elephant and rhino, but also our rich plant life and natural environment in general.
Tourists are drawn to our region not just for our wildlife but to experience the biodiversity of our savannahs, national parks and nature reserves.
Forest resources, Ladies and Gentlemen, also play a key role in mitigating the effects of climate change.
With the ever-present threat of drought, addressing Desertification, Land Degradation and Drought (DLDD) remains key. In this regard, we need to focus our attention on dealing with this challenge, which affects many other sectors such as Agriculture, Industry and Human Health and Well-being as well as Tourism.
With regards to our ocean space, the link between ocean health and human development is explicitly recognised in Sustainable Development Goal 14, which enjoins United Nations member states to conserve and sustainably use the oceans, seas and marine resources for sustainable development.
The development of an Oceans Economy Strategy for SADC is an exciting new area of focus for the region, and I hope that we can draw lessons from South Africa’s Operation Phakisa Oceans Economy, which has led to the creation of new industrial opportunities as well as jobs.
Effectively combating Illegal, Unreported and Unregulated (IUU) Fishing in the SADC Region is critical to the long-term sustainability of our fish stocks and the livelihoods which depend on them. It is important that the SADC Protocol on Fisheries be implemented, as well as the development of the Aquaculture sector.
Turning now to tourism, in 2016 international tourist arrivals in Africa increased by an estimated 8% to reach 58 million, which represents 5% of the world total. Sub-Saharan Africa led the growth in arrivals in this period.
It is key that we advance and promote tourism in the SADC Region, and develop shared and cross-border tourism products that are beneficial to Member States.
The Trans-frontier Conservation Areas (TFCA) programme is a case study of the way in which investments can be driven and resources mobilised for the conservation of wildlife � all the while harnessing the potential of tourism in the region.
Much more needs to be done to unlock the potential of tourism and remove impediments that are hampering its growth in the region. In this regard, implementing the SADC Protocol on Tourism, the activation of the Tourism Unit within SADC and the revitalisation of RETOSA will be critical.
Ladies and Gentlemen,
As you will know, this meeting takes place days after the conclusion of the international climate talks in Bonn, Germany.
SADC must play a meaningful role in the coordination and implementation of not just the United Nations Framework Convention on Climate Change (UNFCCC) but also the Convention on Biological Diversity (CBD), the United Nations Convention to Combat Desertification (UNCCD) and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) to name but a few.
The development of Common Positions for these which are aligned to and bolster the African Common Positions will be key to obtaining outcomes from the global negotiations that are supportive of Africa and particularly SADC.
COP 23 in Bonn ended with a less than satisfactory decision on climate finance � an aspect of the Paris Agreement that is of critical importance to all developing countries that grapple with having to adapt to climate change whilst at the same time ensuring our region grows economically.
The discussions in Bonn did not represent the comprehensive requirement for the provision of support that we expected.
However, we welcome the clarification in the guidance to the Green Climate Fund (GCF) that all developing countries have access to all the financial instruments; and that the provision of full cost and incremental cost, particularly for adaptation has been restated and clarified. The financial pledges made to the Adaptation Fund are also to be welcomed.
I will leave it here as many of these matters will be gone into at length during our deliberations. I wish you well over this period and trust we will be successful in reaching decisions that will not only protect our environment, but also contribute to the improvement of the lives of all our people.
I thank you.
Source: Government of South Africa
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