This time last week I was submerged in the halls of academia. It is wonderful how all the pomp and ceremony and tradition and gowns and hoods seem to work despite the 21st century African setting. I am still wearing that silly grin of pride that began when I watched my daughter experience and enjoy the same rituals that both her parents went through a while back. I had a wonderful time and caught up with several old friends who remained behind at the university when I was prised out of the comfort zone that I had been in for a decade. I wandered out into the real world to see if anyone needed a geophysicist. Not all that much, was the answer, which is why I went stockbroking.
I returned to my desk after the Grahamstown trip, fired up to do some educating (of myself at least) and began with the latest set of government revenue and expenditure numbers.
In the last 12 months the National Treasury has collected (almost all from tax of one sort or another) an awe-inspiring R336bn of revenue This is 14% higher than the figure for the comparable period last year and about R11bn more than forecast way back in the February 2004 Budget. This sort of growth must be very pleasing for Minister Manuel. Many other financial directors will be very envious.
Over on the “Requisitions” side of the page the number is R366bn. This is up just 11% year-on-year. Leaving aside the problem that government and provincial departments and their “structures” are reported to be unable actually to spend this money allocated to them [ref. the story that some nurses are threatening to “expose half their stomachs if government fails to pay them enough money for uniforms”], the shortfall between in and out is still some R30bn. This too is a big number, but not a record. That was seen in August when it reached R41bn. Since then revenue has enjoyed a much publicised surge. Much of it apparently from the tax arising from increased consumer spending.
This gap – or fiscal deficit, to give it its posh name – is made to look small by expressing it as a percentage of some very large number. Economists have chosen the Gross Domestic Product (GDP) as this large number, which in South Africa is in the region of R1 400bn. Bingo! The deficit is now just a perfectly manageable and internationally praiseworthy 2.1% or so.
Government plugs this gap by borrowing – principally in the local bond market, but also overseas. And here’s an interesting problem. If you borrow dollars and euros today, when the rand is strong, what happens when the rand weakens? That overseas debt becomes a whole lot more expensive is what happens. So I agree with the economists who suggest that Manuel should to use his revenue windfall to pay off old foreign debts and not take many new ones. By the way, that should be good for the rand, which will not please those who are calling for it to weaken. What a dilemma. Why do people want to get into government, with these kinds of problems to solve? Please do buy those nurses their uniforms, quickly.
Lots of sport to watch this weekend. The Cats seem doomed. Ernie for the Green Jacket? Can we find any bowlers?
James Greener
8th April 2005
