Question:

Patai is a deputy governor who is leaving in April next year right? Or can his mandate be renewed? Is Patai expected to be reappointed? Do you think he is being dovish to try to keep his job at the MNB post April?

The question was asked in relation to the following story: NBH deputy governor Patai supports rate cut in November - MPC meeting minutes

Answer:

Patai's mandate will expire in Apr 2025, right. This is only his first mandate on the post so his mandate can be renewed for another six years. Patai has been considered to be very close to incumbent NBH governor Gyorgy Matolcsy in the past when he still worked as CEO of UniCredit Bank Hungary and there were even rumours that Matolcsy lived in a house owned by Patai. Relations between the two, however, seemed to have soured in the past year or so, as local media reported of a sharp exchange between them and Patai was stripped from a number of his functions at the NBH after that. Mihaly Varga will replace Matolcsy as governor before the expiration of Patai's mandate so it will be mainly up to him whether he will recommend Patai for re-appointment. Varga is a calm and collected person and he appears to be on good terms with almost everybody so we consider it possible that Patai could be re-appointed, given his strong background and credentials.

We have seen no particular expectations regarding the future of Patai. It's possible that he might act on the dovish side to please the government, although we would think his voting rather stems from professional disagreement with Matolcsy. That's based on the behaviour of the new MPC members - Zoltan Kovacs and Eva Buza, which were appointed by the parliament recently and were expected to be pro-dovish, but have not displayed such a pronounced bias so far.

Question:

Regarding the minimum wages, what share of workers would these increases affect roughly?

The question was asked in relation to the following story: Size of minimum wage hikes in 2024

Answer:

Around 700,000 workers receive the minimum wage for skilled workers and 200,000 - the headline minimum wage, according to government information. This compares to total employment of 3.2mn people, according to the earnings survey.

Answer:

Do you have more context to this story? Wonder if it has to do with HUF depreciation or anything else.

"Crazy rise in prices in stores: Price of important staple food has gone up"

Question:

The story is mostly about egg prices actually, so the headline might be a bit misleading. It says that the price for 10 pieces was HUF 400 in the spring, HUF 430 in Sep-Oct and above HUF 700 at present. The hike in egg prices was explained with a crisis in neighbouring Slovakia, where an important egg producer was hit by bird flu and had to kill a significant number of hens, with spillover effects on regional prices.

Question:

Could you provide sources detailing non-resident investment in local bonds?

Answer:

At the end of each month the NBK publishes a statistical bulletin, which includes data on all government bond operations. The reports feature breakdowns of the operations of both residents and non-residents. They also provide data on bonds that are not issued by the government. In addition, the central bank shares separate data on non-resident (and resident) ownership of its notes. These stats are updated weekly. Finally, the stock exchange's monthly reports include data on the share of non-resident operations in the turnover of the primary and secondary stock markets.

Question:

Is there any available data on what percentage of VAT revenue comes from tourism?

The question was asked in relation to the following story: President Milatovic vetoes changes to legislation on VAT, excises

Answer:

Unfortunately, the Finance Ministry does not provide a detailed breakdown of the VAT revenues in the state budget in its budget execution reports and in the state budget documents. Still, if we look at the VAT revenues data for last year, for example, VAT proceeds were higher by EUR 70.1mn during the summer tourist season in Jun-Aug compared to Q1, when fewer tourists come to Montenegro. However, the share is not likely to be that big, given that the tourism growth this year has been rather slow (1.4% increase in the number of foreign tourist arrivals) and tourist proceeds declined by EUR 49.5mn in annual comparison to EUR 1.31bn in Jan-Sep.

However, according to the latest budget execution data, VAT revenues were up by 14.3% y/y at EUR 1.02bn in Jan-Oct and 1.6% above plan, which suggests that most of the VAT revenues so far this year have been related to household consumption as domestic demand has remained rather robust so far. Still, we note that the government plans to raise VAT on the tourism sector to 15% next year from the currently reduced rate of 7%, which is likely to increase the share of the sector in the overall VAT proceeds.

*Budget execution report for Jan-Oct 2023.

*Latest budget execution data for Jan-Oct 2024.

*Latest tourism data for Jan-Oct 2024.

Question:

Could you please give me more details on this article? Does this means they will undershoot their fiscal targets?

"Spending on defense in 2024 is to be actually below 4% of GDP [Armed Forces Support Fund (FWSZ) to spend 60% of planned amount, meaning deficit to be below 4% of GDP; FWSZ finances arms purchases; total to be spent on defense in 2024 is to be PLN 140bn, or about 3.8% of GDP, not previously planned just over 4.1%; 2025 defense spending to be PLN 190bn, or 4.7% of GDP, but actual spending to be lower, as in 2024 and in 2023] (Rzeczpospolita)"

Answer:

I have pasted the story below. Basically, this is a pattern that is fast becoming a rule. The various governments target a major increase in spending on defence, but don't always hit it. I think this reflects how the budget actually operates in that if the financial resources are not set aside in advance, then the expenditure can't be made, but with procurement there is uncertainty as to what actually will be contracted.

And, so from that story, it seems defense spending could be 0.3pp of GDP below plan -- at 3.8% of GDP instead of the just over 4.1% planned -- and that will help the government meet its 5.7% of GDP deficit target. For comparison, in 2023, the government targeted defense spending at 3.9% of GDP but spent 3.3%.

For 2025, the government targets total defense spending (from budget and from the FWSZ) of 4.7% of GDP, but, keeping in mind the above, I think that there is room for an undershoot here too.

The question becomes how much this helps the final deficit in that other areas tend to be over-estimated, such as government revenue. Thus, one has the case where defense spending comes in shy, but central government revenue shy too, resulting in the final deficit. Just to add, the local government balance in ESA2010 accounts functions very similarly in that there is always a big deficit planned, but it rarely materalises to the same degree.

Story:

Ministry of National Defense admits: This year, PLN 20 billion less will be allocated to defense than expected

Deputy Minister Paweł Bejda announced that this year, the Armed Forces Support Fund's expenditure will reach slightly over 60 percent of the plan. This means that we will spend about PLN 20 billion less on defense than planned, which will be less than 4 percent of GDP.

Polish defense spending consists of two parts: the budget of the Ministry of Defense and the extra-budgetary Armed Forces Support Fund. Only arms purchases are financed from the latter. - The state budget expenditure on national defense for 2024 amounts to PLN 118.1 billion. The FWSZ expenditure for 2024 has been planned at PLN 53.5 billion. After eliminating funds from the state budget transferred by the Minister of National Defense (PLN 12.8 billion), the Fund's expenditure will amount to PLN 40.7 billion - explained Hanna Majszczyk, Undersecretary of State in the Ministry of Finance, in February in response to a parliamentary question by Mariusz Błaszczak. In total, it was supposed to be almost PLN 160 billion, or about 4.2 percent of GDP.

However, on Monday, at a press briefing, Paweł Bejda, Secretary of State in the Ministry of Defence, announced that this year's FWSZ expenditures will not be fully implemented. The implementation level is to be over 60% of the plan - this means that instead of over PLN 50 billion, we will probably spend slightly over PLN 30 billion. In turn, this indicates that in total we will spend around PLN 140 billion on defence in 2024, which will constitute around 3.8% of GDP. According to the plan, it was to be over 4.1% of GDP.

Bejda emphasized that the implementation of the spending plan will still be higher than under the previous government - ​​in 2023 it was about 50 percent. Then too, the plan could not be implemented and instead of the planned 3.9 percent of GDP, we ultimately spent 3.26 percent of GDP. It is worth remembering, however, that among the 32 countries of the North Atlantic Alliance in 2023 it was still the largest percentage of GDP allocated to defense and even taking into account the nominal value, this amount put us in the lead.

What is the reason for the failure to implement all plans? There are two most important reasons. The first is that in June, the parliamentary national defense committee issued a negative opinion on the implementation of the defense ministry's budget in 2023. The basis for this opinion was a negative report prepared by the Supreme Audit Office. NIK criticized, among other things, the fact that the Armament Agency provides contractors with too large advances and transfers funds to foreign contractors too quickly. The problem is that this mechanism was also used in previous years and thanks to the acceleration of payments for, among others, Patriot anti-missile systems or the F-35 aircraft, it was possible to implement the budget practically one hundred percent and the funds allocated for defense did not return to the central budget. What may be surprising is that the defense subcommittee recommended a positive opinion, and later, without any discussion, the MPs changed their minds. It is difficult to interpret this in any other way than the desire of politicians from the current coalition to criticize their predecessors from Law and Justice. However, such action is now backfiring on government politicians, as the lack of advance payment will mean failure to meet the promised level of spending of over 4 percent of GDP on defense.

The second reason for the failure to sign all previously planned contracts is the increasingly difficult relations between the army and the state arms industry, which result, among other things, from low production capacities. This change in attitude can be seen, among other things, in public statements by Deputy Prime Minister and Minister of Defence Władysław Kosiniak-Kamysz and Deputy Minister Paweł Bejda. The former publicly expressed impatience two weeks ago when it comes to concluding a contract for Borsuk combat vehicles. - The Ministry and the Armaments Agency are ready. The funds have been secured for this. I would like to finally get a clear message from our partners who produce it, whether they are ready for this - said the politician. In turn, Bejda, asked at Monday's briefing about the production capacities of Krab gun-howitzers, stated that the Ministry of National Defence is still waiting for a reliable answer from the manufacturer - Huta Stalowa Wola.

Representatives of Donald Tusk's government announce that in 2025 total defense spending is to amount to about 4.7% of GDP and will be almost PLN 190 billion. This seems unrealistic, as indicated by plans and actual spending in 2023 and 2024. Without changes in regulations regarding purchases and a radical shake-up in PGZ, there is no point in expecting this plan to be implemented.

Nevertheless, exceeding the level of 4% of GDP in defense spending will still be a record level of such spending in Poland after 1989 and should secure us the first place in terms of the scale of spending on armed forces among NATO countries. Considering that on January 20 Donald Trump will once again become the president of the USA, such symbolic priority may turn out to be extremely important.

Question: Have there been any comments from Georgescu if he would support the parliamentarian majority if elected as a President? More generally - what is procedure in appointing a parliament and how the President can delay it? Thanks a lot

The question was asked in relation to the following story: PSD's Ciolacu endorses USR's Lasconi for president

Answer: We haven't read anything regarding Georgescu's statements or position on parliamentary majority support. He mostly speaks about things that are not in president's jurisdiction, like changing the Constitution, nationalizing banks or strategic companies; he mostly addresses voter's angers and fears that cannot be solved by the president.

The parliament has a bigger authority than the president and it doesn't need the president's appointment or endorsement. The president's role is just to convene the first meeting of the newly elected parliament in maximum 20 days since the elections' day. This period expires on Dec 21, which is the last day of President Klaus Iohannis term. So, Iohannis will be the one calling the first meeting of the new parliament.

Question: Do you have a side by side comparison of current seats (i.e. pre election) and what we have from the recent election?

The question was asked in relation to the following story: Mainstream parties hold meeting to discuss grand coalition

Answer: You can download it here. There are fewer MPs in the current parliament because some won in the EP elections in June and are now MEPs. Most are from the PNL-PSD, 1 - from the USR, 1 - from the AUR.

Question: Do we have any clarity on the seat distribution yet?

Answer: The Central Election Bureau (BEC) hasn't published anything yet. A news website and a news TV calculated this seat distribution, but they have different numbers (no major differences though) and they did not say how they calculated it. The one published by the news website is here, but we don't have the one announced by the news TV because they don't have it on their website.

We have also made our own calculations. Numbers are not exactly the same as those in the media source, but they are very close. Keep in mind that this is not the official distribution of the Central Election Bureau. You can find herewhat we've got.

Question: By when will we have an idea of seat distributions

The question was asked in relation to the following story: PSD wins general election with nearly 23% after 99.2% of votes counted

Answer: At the previous general election, seats distribution was available right after vote count ended.

Question: You mention: "A realistic scenario is also continuation of the old PSD-PNL-UDMR alliance." - would these three muster a majority after vote re-distribution? or would they need outside support from USR or others?

The question was asked in relation to the following story: PSD wins general election with nearly 23% after 99.2% of votes counted

Answer: We think they could reach majority after vote re-distribution. 4% is secured by minorities, which always back any ruling.

Question: Good morning, can you please quickly explain what happens to the votes below the 5% threshold? How are they re-allocated?

The question was asked in relation to the following story: PSD wins general election with nearly 23% after 99.2% of votes counted

Answer: Local regulations provide proportional re-distribution using D'Hontd method, so parties that exceeded the 5% threshold will see an increase. Another source of increase comes from counting votes from aboard and the biggest beneficiaries are the USR and the AUR.

Question:

In reference to "Ruble strengthens toward USD/RUB 100 level", what is the best source of high frequency data on FX flows in and out of Russia and on exporters sales of FX?

The question was asked in relation to the following story: Ruble strengthens toward USD/RUB 100 level

Answer:

We are not aware of a good and consistent high-frequency source. USD/EUR trade is now only OTC because of the sanctions on MOEX. One source is MOEX, where volumes for CNY trade can be seen and higher volumes may indicate exporters selling more export proceeds. There are occasional comments in media, quoting market participants, which is also partially the basis for our story. But it is unclear whether they really know this or are guessing based simply on the exchange rate dynamics. With capital controls the exchange rate is obviously very dependent on the sale of export proceeds and demand from importers. There is consistent weekly data in CBR's Financial Markets Risk Monitor here, but it comes with a lag.

Question:

Does the CBR publish a list of active credit/macroprudential restrictions in place for regulated credit institutions?

The question was asked in relation to the following story: CBR prolongs measures against unsecured consumer lending to Q1 2025

Answer:

The CBR is using several tools, mainly risk weight coefficients for consumer loans, auto loans and mortgage loans, as well as credit limits for consumer loans only. These are listed here with some explanation. You can see more details for each of the types of regulation in English. In the Russian version of the website only (here and here), there are at the bottom additional links with the current and previous regulations, as well as list of relevant press releases. The whole topic is pretty complicated as both the risk coefficient markups and the credit limits depend on various indicators.

Question:

With respect to the new seasonally adjusted releases, is there any new information in these -apart from some sense of how Turkstat is modelling seasonality? Should it be presumed today's number is based on data in yesterday's print?

The question was asked in relation to the following story: Seasonally-adjusted CP rises 2.9% m/m in November, reversing prior slowdown

Answer:

Yes, it is based on yesterday's figures. Turkstat began releasing seasonally-adjusted inflation indicators, and the first release became publicly available on Oct 4 with the series dating back to Feb 2005, using the Tramo/Seats methodology. The seasonally-adjusted procedure aims to eliminate seasonal factors, which influence the original data, providing more insight into underlying price dynamics. Put differently, there is no difference in the source data, the seasonal adjustment just allows a clearer view on what is going on.

There are two ways for seasonal adjustment under Turkstat's methodology. The direct approach adjusts each unadjusted data series independently, whereas, the indirect approach first adjusts each subcomponent for seasonal effects and then aggregates them to obtain a seasonally-adjusted total. This link provides further information. Once you click on it, please choose the "seasonal adjustment" in the page.

We also kindly recommend that you review the special report entitled "Turkey's inflation data reveals unusual patterns and irregularities" via the following link. Using the same methodology, but adopting direct approach, we replicated their analysis.

Brian Fitzpatrick (Brian.Fitzpatrick@brevanhoward.com) asked:

is this call stale or you still expect just 50bps? tx

The question was asked in relation to the following story: Fiscal package disappoints and pressures Copom to hike Selic

Answer:

The recent development of expectations around the government's fiscal package, notably the survey conducted by Quaest with investment funds about the economic policy, suggests that expectations are worse than we anticipated. Alongside the increase in economic activity in Q3, rising inflation, and FX devaluation, we now expect a 75-bp hike at the Dec 11 policy meeting. The increase in the hike magnitude should also aim to reaffirm the Copom's commitment to inflation control and enhance its credibility as Gabriel Galípolo will be taking over as governor next year, and the survey indicated that there is still some uncertainty about how he will conduct the monetary policy.

Question:

Hello About Brazil, you wrote "We note that the scenario of fiscal dominance is becoming increasingly concerning, raising questions about how far interest rates can effectively combat inflation amid expansionary fiscal policies that sustain economic growth. " What are the developments that point to fiscal or to monetary dominance in the current context in Brazil? Thanks

The question was asked in relation to the following story: Fiscal package disappoints and pressures Copom to hike Selic

Answer:

Despite the BCB initiating a new monetary tightening cycle in September, inflation expectations have remained de-anchored, and inflation projections for the relevant horizon remain above target (the Copom estimates an inflation rate of 3.6% for Q2 2026, above the 3.0% target). Amid uncertainties and skepticism surrounding the government's ability and willingness to cut spending, we have observed an increase in the country's risk premium, reflected in exchange rate pressures that exacerbate inflation alongside the de-anchoring of other inflation expectations. This is likely to be countered by further interest rate hikes by the Copom in the coming months.

Expectations regarding the terminal rate for this tightening cycle have risen significantly following the announcement of the government's fiscal package, increasing from 13.0%-13.50% to around 14.5%-15.0% by May 2025. Further, there is speculation that the Copom may not reduce interest rates in 2025, which was previously expected, maintaining a tight monetary policy stance for longer.

This increase in interest rates puts significant pressure on public debt, one of the main concerns in public finances. Currently at 78.6% of GDP (according to October BCB data), projections indicate that gross public debt will exceed 80% as early as 2025 (data from the Prisma Fiscal report). Without a positive shock to expenditures, we believe a vicious cycle of deteriorating expectations and subsequent Selic rate hikes to contain risk and fight inflation could emerge. However, we believe it is still too early to assert that a scenario of fiscal dominance is present in the country.

Question:

"that the package lacks the structural reforms needed to address expenditures effectively". What more specifically are the structural reforms that would have satisfied those disappointed with the fiscal package? Thanks.

The question was asked in relation to the following story: Proposed spending cuts total BRL 72bn, but tax reform undermines credibility

Answer:

The two most relevant reforms that could have satisfied those disappointed with the fiscal package would be the review of the constitutional minimum spending requirements for education and health, and the link between the minimum wage and social security benefits.

The constitution mandates that the government invest at least 15% of net revenue in health and 18% of tax revenue in education One option to control these expenditures - that is, allowing them to grow faster than the 2.5% limit set by the fiscal framework - would be to cap their increase within the framework's spending range of between 0.6% and 2.5% in real terms, depending on net revenue from the previous year. As mandatory spending on health and education rises, discretionary spending is reduced given the expenditure cap. The above reform suggestion was presented by the Treasury earlier this year through the Fiscal Forecasts Report.

Additionally, the constitution ties social benefits to the minimum wage. As President Lula da Silva pursues a policy of real minimum wage increases, social benefits rise accordingly, creating a domino effect that drives up expenditures. One option would be to link social security benefits to alternative inflation indicators or to propose a new social security reform. This idea was also suggested earlier this year by the president of the Federal Court of Auditors. That said, the fiscal package includes a cap on real minimum wage increases, which appears to be the most effective measure in the package for addressing long-term fiscal challenges.

Question:

What happens if no tax reform is passed and there is still a funding gap of COP 12tn?

The question was asked in relation to the following story: Liberal and Conservative parties say they will reject Petro's financing bill

Answer:

President Gustavo Petro said before that the government would cut the 2025 budget if the Financing Bill gets rejected [link], but without touching social expenditures. For now, it seems that the government will pass the 2025 budget law by decree at the original sum of COP 523tn while still pursuing the approval of the tax reform, and then cut the budget if the reform is rejected.

It is worth noting that this will be the first time a budget law is enacted by decree and skipping Congress, so there is uncertainty about what the government could try. For example, some opposition legislators have said that the government can't issue a budget with a financing gap, meaning Petro would have to submit a budget with the spending cuts already in place.

Question:

Can you provide a summary of the government's support to PetroPeru?

The question was asked in relation to the following story: Petroperú plans to open to private investors in H2 2025

Answer:

In October 2022, under former President Pedro Castillo, a USD 1.0bn capital injection was approved to strengthen Petroperú's financial capacity, ensure fuel supply, and shield consumers from oil price volatility, according to the Finance Ministry. The government also granted Petroperú a USD 500mn credit line to support crude oil, fuel, derivatives, and biodiesel imports.

In February 2024, under President Boluarte government, a USD 800 million loan was approved via the National Bank to sustain Petroperú's operations. Later, in September 2024, the government approved USD 1.7bn in financial support to help the company address its financial crisis. This included a short-term credit line of up to USD 1bn and temporary financial support of USD 750mn. The plan also involved the Ministry of Finance assuming a portion of the company's state-guaranteed debts, up to USD 800mn, to alleviate Petroperú's financial burden.

Question:

Are there any new official budget documents?

The question was asked in relation to the following story: Government to tap central bank for TND 7bn budget funding in 2025

Answer:

This is the Final Report and this is the amended bill. The voting continues today at the Council of Regions and Provinces.

Question:

Does Ghana need to import gas? Is there a deficit between domestic production and consumption?

Answer:

Yes, Ghana imports gas as local production, despite growing over the years since it started in 2014, is not sufficient to cover demand. Most of the consumed natural gas is used for power generation, about 90%. The remaining part is used by industries as a heating fuel, mainly in the production of ceramics. According to the latest available data for 2023, domestic production accounted for 83% of the gas supply and the remaining 17% were covered from imports. The imports come via the West African Gas Pipeline (WAGP) from Nigeria. The Tema LNG facility is also under development to allow the import of LNG, but it is yet to be completed.

The Energy Commission also publishes an outlook for the year, and according to the 2024 one, total supply of gas was projected at 149,160 MMscf, of which 122,610 MMscf from domestic production and 26,550 MMscf from imports. Total demand was projected at 145,825 MMscf, of which the bulk, or 132,066 MMScf was expected to be consumed for power generation. However, data for the period Jan-May showed that the supply was lower than expected due to both lower production and lower imports. This was the reason for power shortages. The situation improved towards the middle of the year but the outlook for H2 still envisaged that supply would be short of demand as total production and imports were estimated at 393 MMscf per day while demand was estimated at 432 MMscf per day. The lower-than-expected production was expected due to planned shutdowns at local gas plants, but gas imports are also unreliable so it's not clear what the real situation has been. The next energy report will provide more information.

The data on production/imports can be found in the energy statistics reports of the Energy Commission here. The outlook reports are available here.

Here's a table with production/import based on the Energy Commission data:

Question: How sensitive is the budget likely to be if the public sector wage agreement were to run 1 or 2 percentage points above budget?

Answer:

With respect to wages, this is a large risk, arguably the largest alongside a potential failure of Transnet. It is very difficult to make any reliable evaluations because the costs depend on many variables and the specific outcomes of the negotiations. The government has previously decided unilaterally to impose an increase that it considered appropriate and this decision was upheld by the Constitutional Court, so this is also a potential outcome, although highly unlikely in 2025.

The sheer size of the compensation spending is so large (about 32% of total spending) that any breach will have a major impact. The Treasury has been trying to contain the annual rate of growth of the wage bill but it has been creeping up nonetheless. The Treasury is aiming for an average growth of 4.5% over the medium term. However, in the MTBPS the spending has increased to ZAR 761.4bn in 2024/25 (ZAR 754.2bn in 2024 Budget Review) and to ZAR 798.3bn in 2025/26 (ZAR 788.7bn in 2024 Budget Review). The Treasury has proposed a programme for voluntary retirement and even allocated a budget of ZAR 11bn but these measures have not been very effective previously. The finance minister is opposed to the 4.7% wage offer and that he said inflation has subsided substantially (2.8% in October), pushing for a lower settlement. I will make sure to monitor any estimates of the costs of the settlement provided by the government and whether they exceed the current projections.

Question: Are you worried about Treasury's cash balances being at fairly low levels historically? Is that implying unusually low buffer against any new adverse shocks?

Answer:

With respect to the first question, the closing cash balance of the Treasury was reported at ZAR 152bn at the end of October, immaterially different from end of October 2023. The Treasury indeed accumulated considerable cash balances during the post-COVID-19 years as a precautionary measure but these balances were quite low at only ZAR 90bn in 2009/10. The cash balances are used mainly for liquidity management purposes as well as to reduce the borrowing requirement. The government is using these balances to avoid larger borrowing costs for instance. I think the main risk of the lower cash balances is that it implies less flexibility in financing the needs of the government and potentially the need to resort to additional and maybe costly borrowing.

I have compiled a table which shows some of the historical data reported by the Treasury. The SARB account holds foreign currency deposits accumulated from borrowing from capital markets and international financial institutions that are used to settle foreign currency commitments of the government. Commercial banks hold other revenues accumulated by the Treasury. As a rule, the government borrows in foreign currency only to meet upcoming FX commitments. The government also resorts to bond switches to manage its financing needs. In the next three years, a considerable increase in foreign borrowing from IFIs is coming up.

The benefit of reducing the cash balances is the lowering of the gross borrowing requirement and therefore the need to pile on potentially expensive debt. Next year (2025/26) the government faces a considerable increase in the gross borrowing requirement to ZAR 602bn from ZAR 424.7bn in 2024/25 because the Treasury used ZAR 100bn from GFECRA to reduce the borrowing requirement in 2024/25. Given that only ZAR 25bn from GFECRA will be available next year, the Treasury will draw down further ZAR 66.6bn from its cash balances. However, there is little change in the cash balances planned for 2026/27 and a small increase in 2027/28, though the closing balances are considerably lower as well. Indeed, the 2024 Budget Review did project considerably lower cash balances starting in 2025/26. These plans will be interesting to monitor in the 2025 budget coming up in February but in my opinion they do not constitute a major risk.

It should also be mentioned that the Treasury withdrew ZAR 250bn from GFECRA out of which ZAR 100bn were paid to the contingency reserve of the SARB to safeguard it from any solvency risks.

Question:

Could I confirm if South Africa's primary balance of around 0.6% of GDP surplus is being influenced by the ZAR 100bn GFECRA inflow this year?

Answer:

The primary balance is not affected by the GFECRA inflow. The primary balance (according to the MTBPS projections) will be worth about ZAR 33.2bn (0.4% of GDP) in 2024/25 fiscal year. This reflects main budget revenues of ZAR 1,797bn and main budget non-interest expenditures of ZAR 1,764bn. The GFECRA transaction is a balance sheet transaction that reduces the borrowing requirement and does not form part of revenues. This has been confirmed by the Treasury in a statement. Initially, however, in the monthly budget execution report for August, the ZAR 80bn transferred at the time was included (maybe accidentally) in the overall main budget revenue which temporarily distorted the main budget balance and was fixed in the following release. The primary budget surplus in 2025/26 is forecast at ZAR 75.3bn (0.9% of GDP). The relevant table is on p.90 of the MTBPS.

Question:

How do you think recent depreciation in INR feeds into RBI thinking, if at all?

Answer:

In our view, the RBI is likely weighing the trade-off between supporting growth through lower interest rates and controlling inflation exacerbated by currency depreciation. India's GDP growth slowed to 5.4% for the July-September quarter, significantly below expectations of 6.5% and down from 6.7% in the previous quarter. Meanwhile, consumer price index (CPI) inflation hit 6.21% in October, which exceeds the RBI's comfort zone of 4% ± 2%. While the recent depreciation of the INR presents challenges for the RBI, its substantial foreign exchange reserves (about USD 656bn) empower it to intervene effectively in the forex market. We know that the RBI intervenes heavily in the forex market to stem INR volatility and we expect this to continue. In our view, the central bank will likely remain cautious in its monetary policy approach, balancing the need for growth with inflationary pressures. The primary concern will remain controlling headline inflation, and hence the central bank will not trim its policy rate. It could potentially ease liquidity conditions by cutting the cash reserve ratio or conducting open market operations to support economic growth.

The question was asked in relation to the following story: RBI to hold rates in December - consensus poll

Question:

What has caused the latest flare up between the two families over the past month?

The question was asked in relation to the following story: Impeachment proceedings vs. Vice President Duterte not on House agenda

Answer:

There are a number of possible reasons.

It could be the fact that the Good Government and Public Accountability Committee of the House of Representatives is looking into the alleged misuse of PHP 612.5mn in confidential and intelligence funds received by the Office of the Vice President and Department of Education in 2022 and 2023 when Sara Duterte was education secretary.

Another possible reason was that the House has cut the budget of the Office of the Vice President (OVP) by PHP 1.3bn and reallocated the funds to the Department of Social Welfare and Development (DSWD) and the Department of Health (DOH). The Congress has not reached a final agreement on the 2025 budget yet, but I think that the two chambers will agree on a reduction of the budget of the OVP for next year.

A third possible reason is the initiative to investigate extrajudicial killings (EJKs) during the war on drugs of the previous administration led by then President Rodrigo Duterte. There are investigations by the Department of Justice (DOJ), the House of Representatives Quad Committee and the Senate Blue Ribbon Committee.

On a related note, the police will investigate the possible existence of an alleged death squad formed by Rodrigo Duterte in Davao City during his tenure as mayor, Philstar reported at end-October.