Although most economists expect few surprises from the 2004/5 Budget to be presented on February 18 at 14h00 by the Minister of Finance, Trevor Manuel, his sobriquet — “Clever Trevor” — means that the budget could still surprise.
The Medium Term Expenditure Framework introduced in October 1997 was meant to take out the surprises from the expenditure side as multi-year rolling budgets were introduced.
The surprise on the revenue is largely backward looking, as increasing tax collection efficiency, the rand exchange rate and domestic demand can tweak actual revenue collections compared with projections.
The main avenue left for Manuel to surprise the market is in how he intends to fund the budget deficit.
In the 2003/4 Budget, the Treasury had projected new foreign loans of R9,3-billion and redemptions of R2,8-billion, while for 2004/5 the Treasury had forecast new foreign loans of 29.5 billion rand to cover the redemption of R21,6-billion worth of foreign loans.
The strong rand, which moved from a worst level of R13,86 per US dollar on December 20 2001, to a best level of R6,09 on December 3 2003, meant that the $1.5 billion dual currency loan, due on July 30 2004, was repaid early.
The 40-billion yen (R2,5-billion) loan and the €300-million (R2,5-billion) still need to be redeemed this fiscal year. That means that the normal annual $1-billion or euro loan would be sufficient to cover the redemption.
The surprise would come if instead of this minimal amount, the Treasury opted for the original R29,5-billion foreign loan issuance this fiscal year.
This would commensurately reduce domestic bond issuance and save the local capital market from “indigestion”, as it faces the prospect of monthly bond issuance of R4,5-billion instead of the R3,5-billion average of last year.
The other surprise could come from the launch of a retail bond market aimed at the individual. This has been on the drawing board for some time, but as yet, has not been launched.
The retail bond would allow investments from R1 000 rand to R1-million, with distribution through the Post Office and commercial banks. Until now, a minimum investment of one million rand has been required to purchase government bonds.
The interest rate would be competitive with the other retail deposit rates and could reduce the call on the domestic bond market by some R500-million per month. — I-Net Bridge