1. The 2008 MTBPS: an exercise in the art of the possible Jac Laubscher Group Economist 24 October 2008

2. International financial crisis: financial system ●Systemic risk being addressed ●Tentative signs of stabilisation ●Normalisation will take some time ●Financial system needs to be reformed: beware throwing out the baby with the bath water ●The underlying cause is human failure

3. International financial crisis: real economy ●Recession on its way  Developed countries: classical recession  Developing and emerging market countries: growth recession ●How severe and how long?

4. International economic downturn Source: IMF World Economic Outlook October 2008 %

5. OECD leading indicator vs. growth Source : I-Graph

6. OECD leading indicator vs. commodity prices Source : I-Graph

7. Current account (% of GDP) Source : I-Graph

8. Composition of current account % of GDP2004 2008 (H1 annualised) Trade balance-0.1-2.1 Net service receipts-0.3-1.6 Net income receipts-2.0-3.3 SACU transfers-0.8-1.1 Current account-3.2-8.1

9. Composition of capital inflow (%) 200320042007H1 2008 Direct investment 10.95.217.048.5 Portfolio investment 14.847.245.68.3 Other investment 29.311.024.737.5 Unrecorded transactions 45.036.512.75.6

10. Inflow of capital Source : I-Graph

11. Rand vs. major currencies Source : I-Graph

12. R/$ vs. VIX Source : I-Graph

13. Reuters headlines: 23 October at 15:00 ●Sterling hits multi-year lows ●C. European FX pressured, forint touches new low ●Norway finmin says “crisis pull-out” hit crown ●Brazil’s currency plunges nearly 6% ●Mexican peso loses 4.9% before official open ●Turkish lira weakens as central bank action eyed ●Romanian leu down 2.5% vs euro in volatile trade ●Asian FX plumbs multi-year lows on growth fears

14. CPIX inflation vs. R/$ Source : I-Graph

15. Have interest rates peaked? Source : I-Graph

16. Household consumption in recession Source: I-Graph

17. Yield on l.t. bonds: SA vs. global Source : I-Graph

18. Government debt (% of GDP)

19. The MTBPS view: two scenarios ●A deep global recession → reduction in international trade → prolonged period of much slower growth in SA → real income and corporate profits under pressure ●Global economic adjustment in medium-term → more balanced growth → benign outcome for SA ●MTBPS is based on second (more optimistic) scenario ●The risk is to the downside

20. MTBPS macroeconomic projections 2008200920102011 GDP growth (%) 3.73.04.04.3 CPI inflation (%) (CPIX 11.6)6.25.34.7 Current account (% of GDP) -7.6-7.8-8.9-8.8

21. Consolidated national government budget 2008/092009/10 Feb. budgetMTBPSFeb. budgetMTBPS Tax Revenue 642.3 711.5699.0 % of GDP 28.127.128.426.9 Non-interest Expenditure 559.9581.5630.5682.2 % of GDP 24.524.625.226.3 Real growth (%) 7.76.77.511.5 Balance 18.53.216.0-41.5 % of GDP 0.80.10.6-1.6

22. National budget tax revenue 2008/092009/10 Feb. budgetMTBPSFeb. budgetMTBPS Total Tax Revenue642.3 711.5699.0 Income & profits369.8380.6409.6416.3 Payroll & workforce7.57.98.28.4 Property14.210.315.711.2 Goods & services218.6215.9241.7233.5 International trade31.526.936.329.6

23. National budget tax revenue (selected items) 2008/092009/10 Feb. budgetMTBPSFeb. budgetMTBPS Total Tax Revenue642.3 711.5699.0 Companies156.5158.9171.4168.7 Transfer duties8.66.09.56.5 VAT167.0 185.2180.3 Fuel levy26.425.528.026.3 Customs duties31.126.535.929.2

24. Borrowing requirement 2007/082008/092009/102010/112011/12 General government-17.02.646.938.77.5 % of GDP-0.80.11.81.30.2 Public sector-5.930.477.291.782.4 % of GDP-0.31.33.03.22.6