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South African Reserve Bank Publishes Quarterly Report

by Lorys Charalambous,, Cyprus

08 September 2009

The South African Reserve Bank, in its Quarterly Bulletin, announced a fiscal deficit for the first quarter of 2009/10 amounting to some 10% of the country’s GDP.

The deficit of ZAR57.7bn (USD7.6bn) in the first quarter was compared against an almost balanced budget recorded in April–June 2008. As the Reserve Bank explained in its Report, “during the year under review fiscal policy became expansionary, partly due to automatic stabilisers and partly due to deliberate policy actions”.

In consequence, while national government expenditure in April–June 2009 rose by 32.5% on the previous year, the slowdown in domestic economic activity was evident in national government tax revenue collections during the same quarter, which decreased by 10%. The 2009 Budget Review had projected that national government revenue would actually increase by 5.7% in the 2009/10 fiscal year, the Quarterly Report observed.

Most major tax categories recorded decreases during the first quarter of the fiscal year, it went on to state, explaining that the decrease in taxes on income, profits and capital gains reflected lower company profits, while the "sluggish behaviour of taxes on property" was an indication of "the continued slowdown in real-estate market activity and the associated lower collections of transfer duties".

The report went on to add that:

"VAT – the major subcategory of taxes on goods and services – also declined substantially by almost 23%, reflecting continued moderation in domestic demand. Taxes on international trade and transactions, primarily customs duties, contracted by over 33%, due to falling imports."

Dr Mnyande, Executive General Manager of the South African Reserve Bank, suggested in the report that:

“Fiscal prudence in earlier years, leading to a well-contained level of government debt and debt-service cost, created the scope for government to move from a national government surplus in 2007/08 to a modest deficit in 2008/09, and a fairly large projected deficit in 2009/10. The fiscal steps taken were set to support economic growth, combat economic hardship, unemployment and poverty, and build infrastructure with a view to enhancing the future strength and robustness of the economy.”

“In conclusion, it is therefore clear that, as is the case in numerous other countries, the South African monetary and fiscal policy settings are currently very expansionary,” he continued. “In our view, if sustained in more normal times, this policy mix could easily sow the seeds of the next economic dislocation.”

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