PRETORIA) The words that best describe South Africa’s Finance Minister Malusi Gigaba’s Budget Speech and Treasury’s review came straight from the man himself: “This is a tough, but hopeful budget”.

His speech reveals the economy is in a much better shape, but significant risks remain to economic and fiscal projections These are the key economic takeaways from Treasury’s Budget Review:
• Budget 2018 moderates spending & raises revenues required to contain the growth in national debt, whilst trying to minimise negative effects on growth.
• Over the next 3yrs, the spending framework includes:
– Expenditure reductions amounting to R85bn
– R57bn allocated for fee-free higher education & training
– Additions to the contingency reserve amounting to R10bn
• SA’s economic growth outlook has improved. Its 2017 GDP growth projection revised upward to 1% vs 0.7% forecast. 2018 growth expected to be 1.5%; rising to 2.1% in 2020.
• The economy has benefited from strong growth in agriculture, higher commodity prices and, in recent months, improving investor sentiment.
• In 2017, gross fixed-capital formation continued to decline and unemployment reached the highest level recorded since 2003. .
• Combined profitability of state-owned companies, measured by return on equity, fell from 0.8% in 2015/16 to 0.3% in 2016/17. Several are in financial distress.
• Capital spending by the major state-owned companies is projected at R368.2bn over the medium term.
• The three largest development finance institutions held assets totalling R258.9bn at the end of 2016/17. Their loan book totalled R140.5bn.
• The overall solvency of social security funds weakened, largely as a result of the liabilities of the Road Accident Fund. If the fund is excluded, their position has improved. A new road accident benefit arrangement was approved by Cabinet and tabled in Parliament in June 2017.
• The public-sector borrowing requirement is expected to be R329.1bn in 2017/18, R77.4bn higher than projected in the 2017 Budget, mainly due to a larger consolidated deficit.
• Compared with the 2017 Budget projection, the gross borrowing requirement for 2017/18 increased by R25.1bn to R246bn.
• Demand for government debt remains robust, despite two sovereign credit-rating downgrades during 2017.
• Net debt is expected to be R2.28trn in 2017/18, or 48.6% of GDP, increasing to R3.03trn, or 52.2% of GDP in 2020/21. Net debt is expected to stabilise at 53.2% in 2023/24.
• Debt-service costs have increased to an estimated R163.2bn in 2017/18, or 3.5% of GDP, and are projected to increase to R213.9%, or 3.7% of GDP, in 2020/21.
• Deep and liquid domestic capital markets will remain government’s main source of borrowing..
• Eskom, independent power producers and the Road Accident Fund account for the majority of government’s contingent liabilities.
• The 2018 Budget proposes major spending adjustments and tax measures in response to the unsustainable debt
• The consolidated deficit is projected to narrow from 4.3% of GDP in 2017/18 to 3.5% in 2020/21.
• The main budget primary deficit will close over the medium term, helping to stabilise the gross debt-to-GDP ratio at 56.2% of GDP in 2022/23.
• Public spending is expected to be R1.67trn in 2018/19, R1.8 trn in 2019/20 and R1.94trn in 2020/21.
• Departmental budgets have been reduced by R85.7bn over the medium term. Cuts at the provincial level mainly affect conditional infrastructure grants.
• Spending on staff and salaries, which absorbs 35% of expenditure, is expected to grow at 7.3% per year.