Question:

Can you please share what we know thus far in terms government issuance plans across key CEE markets for 2025 (Poland, Hungary, Czech, Romania and Serbia)? Both in terms of hard currency (eurobonds) and local currency?

The question was asked in relation to the following story: Public debt rises marginally by 0.1% m/m in July, ESA ratio is up to 52% of GDP

Answer:

Poland:

The actual hard currency total is unclear at this moment. FinMin Domanski talked of EUR 15bn-18bn in USD and EUR issuance in comments cited by Bloomberg and made in Washington DC on Thursday, but that is just the EUR total of what are the PLN gross foreign borrowing plans. It is thus not clear how much will be in EUR and how much in USD.

Czech Republic:

No official issuance plan is available in the Czech Republic, the numbers are typically published in the first week of January.

The budget deficit target is CZK 241bn in 2025, while debt amortisation - CZK 261.7bn. Net operations with financial assets are usually set at zero or close to zero, so gross debt issuance should be around CZK 500-510bn. The Czech finance ministry tends to rely almost entirely on medium- and long-term debt instruments, so we assume only about CZK 15bn in retail bonds and domestic loans. Net external financing is set at CZK 16.4bn, but this is a relatively small amount (just over EUR 500mn), so we assume it will be through loans, rather than Eurobonds. Based on this, gross bond issuance should be around CZK 470-475bn in 2025.

Both this and the previous governments have had a clear preference for bond issuance under domestic law, and we doubt this will change in 2025, so the odds of a Eurobond are very low. Regarding fx debt instruments released on the local market, there have been few of these. To illustrate, the finance ministry will offer an EUR-denominated bond in the domestic debt market in November (for up to EUR 500mn), for the first time since May 2022. Thus, even if there are some fx debt instruments, they are likely to represent a negligible share of total debt issuance.

Romania:

The 2024-2026 public debt strategy sets guidelines for potential borrowing in medium term. However, the actual borrowing plan is made after the budget and usually announced at the beginning of the year. The debt strategy notes RON 10bn borrowing through T-bills, RON 59.2bn through bond issues and RON 20bn through retail bonds in 2025. External market borrowing should consist in EUR/USD 8.5bn through foreign bonds, EUR 1bn from IFIs and EUR 4.9bn drawings from the loans' allotment in the RRF.

Hungary:

The State Debt Management Agency (AKK) has not published its borrowing strategy for 2025 yet. This usually happens in the first week of December, but in these cases the budget for next year has been already adopted by the parliament during the summer. It might be later this year as the parliament will adopt the 2025 budget not earlier than mid-December.

In general, the government targets a budget deficit of 3.7% of GDP in 2025. This should amount to around HUF 3,410bn under the currently available government GDP forecast. The AKK expects a total of HUF 6,506.4bn of government debt to mature in 2025, including HUF 768.5bn of forex bonds issued abroad. This means that the total budget borrowing requirement should be roughly HUF 9,915bn or around 11% of GDP. It is difficult to speculate about the likely distribution of gross borrowing between local and foreign currency next year, but the AKK has signalled that the share of forex debt is very close to the upper 30% limit. Accordingly, we believe that the AKK will target net forex issuance close to zero in 2025. Gross forex issuance could be thus comparable to the expected forex debt expiries, or around EUR 2bn, in our view.

Serbia:

Serbia has not revealed yet the borrowing plans for 2025 because the government is still working on the draft budget.

Question:

Would you have a bit more details on the non-tax revenue increase as well as the drop in regional spending? To what extent these are sustainable as opposed to one-offs?

The question was asked in relation to the following story: Local government budgets report a surplus at 0.8% of GDP in January-August

Answer:

Unfortunately, the Czech finance ministry does not provide plenty of details about non-tax revenue or spending of local governments. Non-tax revenues are usually the various fees collected by local councils, like commercial licences, building permits and property transfer fees, parking permits, etc. These tend to correlate with economic activity, though it is not always a strong relation.

As far as spending at the regional level is concerned, the most likely explanation is the expiration of energy support schemes, which were delivered mostly regional governments, whose capital expenses have decreased this year. There was also a reduction of industrial subsidies, as part of the government's fiscal consolidation package, also usually distributed by regional governments.

Thus, we would argue that the spending decline is likely to be a one-off event, while the non-tax revenue increase will probably continue. Non-tax revenue has been rising in recent years, so this is not a very isolated occurrence, especially after economic activity is a bit better than a year ago.

Question:

Why has the initial analysis ignored diverse predictions of opinion polls (and relied, in fact, on pro-government poll as a forecast) and, more important, why the large gap between exit polls is not even mentioned? Besides OSCE there were other observers present and their number larger than that of OSCE - but their views are not mentioned.

The question was asked in relation to the following story: Impressive win for Georgian Dream at the ballot

Answer:

The initial analysis has, of course, not ignored the diverse predictions of opinion polls. Quite on the contrary! In the very detailed ElectionWatch we actually cited only one poll commissioned by a TV channel close to the government and two polls commissioned by TV channels close to the opposition. Moreover, we clearly stated that these polls "portray a different distribution of votes among competing blocks despite agreeing on the primacy of GD among voters".

Moreover, in the second ElectionWatch, appropriately titled "War of Polls", we unambiguously referred to the large gaps in existing polls and underscored that this "partisan polling continues to paint confusing picture for the upcoming elections". We continued to say that "there is an uncomfortably large divergence among the surveys depending on who has commissioned them". Here we also cited one government poll and two opposition polls.

Ultimately, our deep analysis of the election backdrop in Georgia convinced us that we are heading to a situations where, to cite ourselves again, the most likely outcome of the elections will be the following: "Our baseline scenario assigns a 40% probability of a simple majority win for GD, without receiving a constitutional majority."

We have been spot on with our forecast of the election outcome.

With regards to the OSCE mission we cited, please kindly note that this is not an OSCE mission only. In fact, it is a joint mission that includes: 1) the OSCE Office for Democratic Institutions and Human Rights (ODIHR); 2) the OSCE Parliamentary Assembly (OSCE PA); 3) the Parliamentary Assembly of the Council of Europe (PACE); 4) the NATO Parliamentary Assembly (NATO PA); and 5) the European Parliament (EP).

Question:

The research on the FX pass through having increased of late, do you know where to find it?

The question was asked in relation to the following story: MPC to pause interest rate cut cycle in short term

Answer:

The NBH started highlighting the increased exchange rate pass-through on the basis of its research paper from Jul 2023. We reported the paper's results back then and our article also contains a link to the paper itself, which is sadly available only in Hungarian.

Question:

I am wondering how much fiscal slippage you see ahead of the elections? Also how you think the outcome of the upcoming US elections could affect PM Orban's fiscal plans/the Hungarian economy?

The question was asked in relation to the following story: Economic action plan shows fiscal consolidation risks - Fitch Ratings

Answer:

We think that the prospects for fiscal slippages very much depend on the state of the economy. If the economy continues to underperform, then there will be deficit overruns for sure as the government will feel very much pressed to deliver, given the increasing challenge from its political rival, the Tisza Party. In turn, the economic outlook very much depends on the state of the EU economy and the specific development of the electromobility industry, which are among the root causes for the current weakness of the Hungarian economy. The latest expectations are for gradual recovery in both external demand in general and the electromobility industry in particular, so we rather believe that no fiscal slippages are likely in the medium term if these expectations do materialise and they support a pick-up of GDP growth in Hungary to or above 3% in 2025-2026. You may know that the S&P Global Ratings commented in its latest rating decision from Oct 25 that it expected GDP growth to rebound in the next years, but to remain more muted than the government expectations. Its baseline scenario expects a deficit of 5% of GDP in 2024, 4.3% in 2025 and 3.8% - in 2026, representing slippages of respectively 0.5pps, 0.6pps and 0.9pps compared to the government targets.

Regarding the US elections, the Hungarian government has frequently stated that its economic outlook, respectively the budget outlook, depend on the war in Ukraine and by extension, on the results of the US elections. It has signalled expectations for a swifter end of the war in Ukraine in case Trump wins in the US, entailing a stronger growth outlook for Hungary in 2025. Uncertainty around the US elections therefore prompted the government to delay the drafting of the 2025 budget so late in the year. We expect fiscal policy to be more conservative in case Trump loses and to be more ambitious in case Trump wins. More ambitious would mean more economic support measures, but still within the framework of the current 3.7% deficit target, as the government will hope for these additional policies to be financed out of higher budget revenues as a result of the stronger economy.

Question:

I am trying to find the breakdown of employment and unemployment data by industry. Do you have this data? Do you know exactly where it is published? I know it is on the HCSO website, but where exactly within the site?

The question was asked in relation to the following story: Unemployment rate rises by 0.4pps y/y to 4.5% in September

Answer:

The press releases of the stats office have a link towards the detailed tables in the top right corner - a grey box with a "Stadat" sign. Here is the link to the list with detailed tables on the labour force survey. The breakdowns of the number of employed and unemployed are on a quarterly basis here. The breakdown on the number of employed by industry can be found in table "20.2.1.7. Changes in the number of the employed" (you should scroll down for that particular breakdown) and the breakdown of the number of unemployed by industry can be found in table "20.2.1.9. Changes in the number of the unemployed".

QUESTION:

Why are there two different estimates of next year's sovereign fund transfer?

The question was asked in relation to the following story: NBK governor says sovereign fund withdrawals exceed receipts

ANSWER:

The total sovereign fund transfer is divided into guaranteed transfer and targeted transfer. Both come from the fund, except only the guaranteed transfer is regulated by the budget code and the fiscal rule in particular. That transfer is set at KZT 2tn in 2025 as well as in 2026 and 2027.

The targeted transfer is different as it is not subject to restrictions under the fiscal rule. Decisions about such transfers are made by President Tokayev and the idea is that they should only fund strategic projects as an exception. Next year's targeted transfer is quite high at KZT 3.25tn in order to allow for Tokayev's reform agenda to continue. Overall, the combined transfer amounts to KZT 5.25tn in 2025.

Question:

There seems to be divergence in PPI inflation in Poland compared with other Central European countries. Do you have an explanation for this?

The question was asked in relation to the following story: PPI deflation widens to 6.3% y/y in Sep, coming in wider than -5.7% consensus

Answer:

One thing to note is that I used the term "PPI deflation" instead of "PPI inflation," with the latter more common. So, in fact, Poland's PPI deflation has been much bigger than in, say, the Czech Republic (I still have a hard time using Czechia) and Hungary.

I have created the following table:

But another thing to note is that the data series for CZ are not directly comparable with PL or HU because the Czech statistics office reports on domestic PPI only, not total PPI, which is what they do in PL and HU. In fact, total PPI in the CZ was -3.9% y/y in August (Eurostat data), so the difference isn't so big.

As for the main factor, one key one in explaining why the CZ and HU PPI is higher than in PL is FX depreciation. Both HUF and CZK have weakened over the past year whereas the PLN has remained much stronger.

Another factor could be the base. In CZ at least, the base is low due to the expiration of all energy support schemes at the end of 2023. But for Poland, there were very limited ones impacting companies in 2023 but the base was high at a time energy prices were surging. There was the Anti-Inflation Shield capping power, gas, and heating prices, but it was mainly for households. Company power and gas prices have been freed up for some time, and so it often happens that if energy sellers are forced to sell to households for less, they will make it up in part via higher prices for companies.

I think this explains the main differences.

Question:

Are there any statistics on battery production in Poland?

The question was asked in relation to the following story: Passenger car production plunges 63.4% y/y to 10,200 units in Sep

Answer:

I was able to find some battery production on the GUS website (here). I am not sure the difference between normal batteries for combustion engines and for electric vehicles, though, and that means I'm not sure if this includes everything. The component is entitled "Batteries for motor vehicles in thousand units."

Question: Has there been any comment from EC officials on this consolidation plan?

The question was asked in relation to the following story: Finance ministry plans slow fiscal adjustment, amid weak growth in medium term

Answer: No, the plan has just been approved and published. Discussions probably started because the EC has to agree with it. Changes are possible if the EC sees some aspects of this fiscal consolidation differently.

Question: Do you think this INSCOP poll understates support for PNL? Other polls (e.g. CURS) show a bit stronger support

The question was asked in relation to the following story: PSD to win general elections with 31.4% of votes - INSCOP poll

Answer: We must say first that we can't name a pollster that we consider reliable or to which we can give a probability of more than 50% of being totally objective. No pollster publishes with regularity and almost all polls are ordered and paid by either political parties or government and opposition media. Also, we suspect several big ones of political bias, like CURS and Avangarde. For example, CURS' director is owner of a political news website clearly favouring the PSD. Then, we don't think we can compare PNL's results in CURS and INSCOP polls because they use different methodologies: CURS uses door-to-door and INSCOP uses CATI. Even so, the difference is, indeed, quite big and we believe both are far from reality. The PNL cannot have above 20% support, like CURS says, because the party's popularity has deteriorated a lot since this coalition with the PSD was made. The PNL's traditional electoral base is around 25% and it is unrealistic to think that the party still has now more than 20% support. At the same time, the PNL has its own loyal supporters and we doubt they represent only 13%, like INSCOP says.

Question:

Is there any withholding tax or any restrictions on an onshore Turkish corporate borrowing from an offshore entity for a loan or swap please?

Answer:

There are no specific restrictions on corporate borrowing from offshore entities, according to our knowledge. The universal restrictions on forex borrowing will apply, i.e. only companies which generate forex income from operations could borrow in forex and the size of the forex loan should not exceed the forex income generated by the borrowing company in the past three years with few exceptions. Withholding tax will apply on the interest payments of the forex loan from abroad, unless Turkey has a tax treaty signed with the country of residence of the lender. Such treaties rarely provide more favourable withholding tax rules than the domestic rates of 10%, according to expert comments. Turkey does not have tax treaties with offshore countries, as far as we know. You can see a list of the withholding tax agreements between Turkey and various countries here.

We would like to note that legal matters, including the complex institutional framework of international taxation, are outside our area of expertise so we cannot claim complete knowledge and accuracy of information.

Question:

How is the outlook for fiscal financing in the next two years? Does this money add to the ERA loans specified in the IMF's Fifth Review or is it entirely new money?

The question was asked in relation to the following story: European Council agrees EUR 35bn assistance as part of USD 50bn G7 aid

Answer:

No, this approval refers to the ERA loan, collateralized with income from immobilized Russian reserves. The loan is for about USD 50bn, of which the USA and the EU will provide roughly USD 20bn each, Canada - USD 3.6bn, Japan - USD 3.1bn and the UK - USD 2.9bn. The EU approved a larger amount of "up to EUR 35bn" because of concerns that the US may not provide its share, but now it seems it will, so the EU share will be only USD 20bn. The timing of the loan is unclear, however. Otherwise, the draft budget for 2025 provides for international financing of USD 38.3bn. In the fifth review, the IMF forecasts international assistance of USD 35.7bn for 2025, consisting of USD 13.7bn from the EU, USD 19.1bn from the ERA loan and USD 2bn from other sources. This excludes financing by the IMF itself, however.

Question:

Can you share your breakdown of net FX reserves? What was the amount of government FX deposits by the end of September?

The question was asked in relation to the following story: Net FX reserves fall to negative USD 7.4bn in September, will rebound in October

Answer:

Our table with the breakdown of net FX reserves as of the end of September is copied below. Government deposits went up to USD 1.5bn as of the end of September, which matches the coupon payments due next January on sovereign bonds. These deposits will be down in October because the government transferred about USD 1.0bn to its fiduciary account at the Bank of New York.

Question:

What is the calendar/timeline and process for the upcoming MPC members change ?

The question was asked in relation to the following story: Fiscal risks complicate efforts to accelerate MPR cuts

Answer:

Finance Minister Ricardo Bonilla confirmed that the upcoming changes to the board will take place in January of next year. As a reminder, board members, except for the chair and the finance minister, are appointed by the president to fixed four-year terms, renewable up to twelve years in total, with two members rotating every four years during the first month of each term.

Chair Leonardo Villar assumed his role in January 2021, alongside co-directors Bibiana Taboada, Jaime Jaramillo-Vallejo, and Mauricio Villamizar. This means that President Gustavo Petro will have the opportunity to appoint two of the five board members, likely replacing those mentioned, whose terms expire in 2025. We note that Villar has been reelected as chair and will continue for another four years.

At present, Petro already holds influence over two board seats: Olga Lucía Acosta, appointed in 2023 following a Council of State ruling mandating gender parity, and Bonilla. With the new appointments in 2025, Petro would then have control over four of the seven seats, raising some concerns about the independence and the potential impact of this majority on future monetary policy.

Question

Does this mean that there is a good chance the judicial reform will be rejected? And how does this factor in the recent constitutional amendment passed by the senate last Friday that establishes the supremacy of the legislature over the judiciary regarding constitutional changes?

Answer

The Supreme Court is likely to find parts of the judicial reform to be unconstitutional, in our view. Eight justices are needed to block the reform or parts of it, and this consensus seems to exist. However, the court is not looking to reject the reform in full, only to limit it. The draft to be discussed by the court next week looks to chop the reform on several articles; however, the main change is that it does not allow for the election of federal judges, while allowing for the election of Supreme Court justices and of the magistrates of the Electoral Court. This is a grave enough deterioration of the institutional framework; however, it's limited in comparison to the bill approved by the courts.

How this will play out remains to be seen. The reform passed by the Senate establishing the supremacy of the legislature over the judiciary regarding constitutional changes has not been published yet, it will be approved by the House of Deputies on Wednesday or Thursday, when it will be sent to state-level legislatures for its ratification; it will probably be published before November 5, when the court will look at the constitutionality of the judicial reform. The reform does not change the framework under which the court should look at the constitutionality of the judicial reform, in our view, considering no reform can retroactively diminish any rights, in this case the right of the National Action Party's to challenge the judicial reform remains valid (again, in our opinion). The reform, however, does give the MORENA regime a new argument to not abide by the court's ruling, as it plans to, per comments by Deputy Ricardo Monreal.

The most complicated scenario will come if the court rejects part of the bill and the MORENA regime looks to disregard the ruling. It cannot appeal a Supreme Court ruling but will probably try to push the Elections Institute (INE) to abide by the reform about the supremacy of the constitutional reforms; however, we do not believe the INE will disregard a Supreme Court ruling, considering it has respected the stays granted by federal judges, even when leaders of the MORENA regime, including President Claudia Sheinbaum disregarded them.

The question was asked in relation to the following story: 8 justices to 'quit' the Supreme Court, will not participate in election

Question:

Foreign Holdings of T-bills at 50% seems VERY high... Should we be worried about the rollover of these bills going forward? Do you have data on duration & maturity of those?

The question was asked in relation to the following story: Foreign funds buy USD 700mn worth of bonds/T-bills on EGX in September (net)

Answer:

Indeed, the high share of foreign holdings has increased the roll-over and capital outflow risks. There is no breakdown of what tenors the non-resident investors hold, but a separate breakdown of the outstanding stocks suggests these are mostly longer-term tenors (9- and 12-month notes). The exposure to portfolio investors will probably become more problematic in early 2025 when the CBE is expected to start cutting interest rates as inflation is projected to slow on the back of favourable base effects, tighter fiscal policy, and high interest rates. Interestingly, the outstanding stock of 3-month T-bills was falling consistently between March and July, but the CBE stepped up the issuance of these bills in August and September, probably in an attempt to attract more portfolio inflows amidst the global financial volatility.

Question:

With latest price hikes how far away from cost recovery are Egyptian fuel prices

The question was asked in relation to the following story: IMF says size of Egypt's loan programme is still appropriate

Answer:

We haven't seen any official estimates, but the local press quoted unnamed government officials saying that the new prices now cover 85% of petrol costs and 70% of diesel costs. That source also said the government is still subsidizing diesel purchases by EGP 8bn (USD 164mn) per month and petrol purchases by EGP 1.8bn per month. They reportedly said that the latest price increase will save the budget around EGP 10bn during the next quarter.

Question:

How was the Ras Al Hikma cash used?

The question was asked in relation to the following story: IMF keeps 2024/25 growth forecast at 4.1%

Answer:

The New Urban Communities Authority (NUCA) received USD 24bn in new financing from the Ras El-Hekma investment deal with the ADQ. Separately, the UAE's deposits of USD 11bn at the CBE have been converted to local currency for the ADQ's investment inside Egypt. The CBE purchased USD 15bn from the new financing to boost its international reserves, while the remainder remained with NUCA. The Ministry of Finance has received the local currency equivalent of USD 12bn from the transaction in its Treasury Single Account, which was used to reduce budget sector debt.

The IMF has noted that the purchase of proceeds from the Ras El-Hekma transaction for the purposes of reserve accumulation have been fully sterilized.

How NUCA plans to use the money?

However, we are not sure what the NUCA would allocate the money to, and we are not sure the government has announced any plans for that money. We thought NUCA would use the money to finance part of the project, but the government had told the IMF that NUCA will function as the regulator for the project's development (e.g., issue licenses and review development plans) and that the public sector will not undertake, finance directly or indirectly, nor guarantee financing of any new investment in the area designated for the project. (IMF Third Review). So, we are not sure what NUCA will use the money for, but we think that financing the development of other public urban projects makes most sense.

Question:

Do you have any sources for the numbers here please? The ILS 744bn include about 161bn of debt repayment is my understanding, which would take the budget to ILS 583bn - rather reasonable.

The question was asked in relation to the following story: Finance minister insists NIS 40bn consolidation measures in 2025 to be made

Answer:

The source is the budget draft for 2025 provided by the finance ministry to the media. The numbers were quoted by local media, for example here. In the document, the expenditures are set at NIS 743.9bn and when excluding debt payments of NIS 161.1bn, it indeed brings spending down to some NIS 583bn. There are concerns, however, that the spending for the defence ministry might be higher in the final version of the budget because the war might not end when expected by the ministry (currently in Q1) and it remains unclear if there would be allocations to the defence ministry in line with recommendations for strengthening its capacity. Smotrich has said so far that there would be no such spending in 2025 but I have been reading assessments that there would be some allocations in 2025 too. As far as I understand, the ministry has not also reached final agreements about cuts with the other ministries. Therefore, the final spending plan might be eventually higher.

Question:

How to track PIF in GDP? CAPEX goes into Government GFCF or Private GFCF (Which is seeing a boom of late)?

The question was asked in relation to the following story: Sovereign wealth fund PIF to redirects investment focus home - director

Answer:

PIF's investments in Saudi Arabia are most certainly captured by non-government gross fixed capital formation. PIF, which has a separate budget, has a large portfolio of investments (more than 90 companies) so it pumps money into these companies.

GASTAT's GDP methodology does not give many details into what goes into government GFCF, but taking into account its size is significantly lower than non-government investments, I think it is safe to assume most of PIF's investments were channeled through non-government entities.

Question:

What's your take on the latest Reuters headline that KSA "is doubling down on its vision 2030 plan"?

Answer:

As you probably know, the government's Vision 2030 assumes massive FDIs, but the government is struggling to shore up foreign investments and counter doubts about its giga-projects after setting overly ambitious FDI targets. Earlier this year, Saudi Arabia downsized some of the projects - a move that the IMF commended - cut spending on some projects and rationalized others. This has raised some concerns in the country as it signalled the end of what seemed like an era of unlimited resources, which most likely discouraged foreign investors even more. Regional tensions have escalated this year as well, and the outlook deteriorated considerably, again dragging on foreign investor sentiments.

So, it is in this context that the government is trying to shore up foreign investments and we believe the statement about "doubling down" stems from. There have been some concrete steps announced during the Future Investment Initiative held in Riyadh.

The most important one seems to be the announcement that PIF will redirect its focus to local investments. According to its managing director, PIF's foreign assets are around 30% of total assets under management (which have risen to USD 977bn), and this share will be gradually cut to around 18-20%. This should free around USD 100bn for local investments.

Secondly, in a somewhat surprising move, the Saudi investment agency released revised FDI figures earlier this week, showing that Saudi Arabia actually met the 2023 target. In fact, the new data shows significant increase in FDIs (net and gross), which countered the narrative that foreign direct investment in the kingdom has been below expectations and has for years fallen behind government projections. We have some concerns about the ministry's report - it seems it does not take into account the acquisition and disposal of foreign financial assets by Saudi residents and only tracks non-resident flows.

This is a broad review of the current challenges. Let us know if you need a more detailed or in-depth review or you have further questions on a more specific topic.

Question:

Do you have a historic data series of gasoline/fuel prices in Angola? Is the price for a litre of diesel capped at AOA 200 since April 2024?

Answer:

Fuel prices have been subsidized by the state and there have not been many changes over the past several years. The gasoline prices were last changed from 160 AOA to 300 AOA in June 2023, reflecting a substantial increase of 87.5%. Diesel prices were increased from 135 AOA to 200 AOA in April 2024, showing a 48.1% rise. Those were the first changes since 2016 as part of efforts to gradually reduce fuel subsidy burden on budget.

The hope the following table would help:

The question was asked in relation to the following story: Diesel price increase by 48% as fuel subsidies phase out

Question:

Can you please remind me when the next ANC leadership election will be? And who the key contenders are? If someone is elected to lead the ANC who has different policy views than President Ramaphosa, does that mean that Ramaphosa will step down?

The question was asked in relation to the following story: Ramaphosa is unlikely to be pushed out at this stage despite electoral collapse

Answer:

The next ANC National Conference falls in December 2027 (it has not been scheduled but all previous conferences were held in December). President Cyril Ramaphosa was re-elected at the party leadership post in Dec 2022 and cannot hold a third term. As general elections will not be held until May 2029, it seems that Ramaphosa will be president of South Africa but not a president of the ANC for the period between Dec 2027 and May 2029.

There is no formal requirement that the president of the ANC should be the president of South Africa, although practically most presidents of South Africa have also been the president of the ANC. There was the exception of Kgalema Motlanthe who replaced Mbeki who stepped down as national president in 2008 on request from the ANC after the 2007 elective conference. Zuma was also asked to step down in order to transition power to Ramaphosa after 2017 elective conference.

In very simplistic terms, there are two broad factions in the party, the one around Zuma and the one that is opposed to Zuma. After 2017, Zuma's camp is considered weakened, he is now the leader of another party - the MK party. In my opinion, this largely reduces the potential risk and need for Ramaphosa to step down as national president after the ANC elective conference in 2027. There is the added circumstance that this not the ANC government anymore since the 2024 general elections and it could be argued that the ANC cannot unilaterally replace the sitting president. As things stand now, and this could change in the future, I believe that Ramaphosa should be secure at the post until the elections.

It seems that there already are some discussions going on about Ramaphosa's successor. Ramaphosa mentioned this in his closing statement of the latest NEC meeting this past weekend. The media reported him saying that only two years have passed since his collective leadership was elected and it was premature to hold such discussions. He said there will be time for disciplined discussions but now was not the time.

Earlier this month, other officials from the ANC, for instance sec-gen Fikile Mbalula and deputy president Paul Mashatile, also criticized attempts for a succession discussion. Mbalula labeled such attempt as a non-starter.

There is a tradition that the deputy president was usually elected president. Mbeki was Mandela's deputy, Zuma was Mbeki's deputy and Ramaphosa was Zuma's deputy. Motlanthe was considered a caretaker president and was subsequently appointed Zuma's deputy when Zuma became president of South Africa after the general elections. Fast-forward to today, Ramaphosa's deputy Paul Mashatile has previously stated his availability if he was asked to run for president. According to a report in the Sunday Times, provincial chairperson Oscar Mabuyane was also a potential candidate in the next ANC leadership race and there could be others as well. Both Mashatile and Mabuyane are considered close allies to Ramaphosa.

Question:

Which are the main forecasts and targets to keep an eye on in the medium-term budget in your view? Have rating agencies indicated what they will be looking for in order to assess whether SA's fiscal position is improving or not?

The question was asked in relation to the following story: Treasury allocates all ZAR 630mn bids at inflation-linked bond auction

Answer:

The most interesting forecasts to observe would be on the macroeconomic side and see what is the new GDP projection of the government for the next couple of years, coming out of what looks like a relatively weak 2024. The major effort of the government is going into measures and reforms that will be able to lift growth above the historically weak levels and it would be interesting to observe whether the country will be able to lift out of the low-growth high-interest trap. It seems that some green shoots are starting to appear, however, the largest task would be to attempt to fix the logistics crisis at Transnet in order to achieve any growth above 2% which seems like a plausible scenario for next year.

On the fiscal side, there should not be any surprises, in my opinion. The deficit is on track in the first five months of the year and the windfall from the two-port retirement system withdrawals will add further support on the revenue side which is already much better than last year when revenues were substantially under pressure. The reduction in the political risks and the establishment of the new government has helped the government to reduce its borrowing costs and along with better revenues, controlled expenditures and the GFECRA settlement, the borrowing requirement should see a notable reduction compared to last year.

Rating agencies will be closely monitoring any pressures on the spending side that could weigh on the fiscus but overall I do not think that the Treasury will be changing its course on the expenditure side and will remain focused on consolidation. The budget deficit is heading in the right direction in the next couple of years which means that it should help the downside debt trajectory. The decline on interest spending in the future is good news. The rating agencies are also watching real GDP growth performance which after 0.7% in 2023 is improving slowly in 2024 and hopefully faster in the next couple of years.

As always, we will publish a report with the main points when the MTBPS is released and it should be a positive story overall.

Question:

What are the remaining steps for the debt restructuring process? And how could the different outcomes potentially disrupt this?

Answer:

Sri Lanka's debt restructuring process is currently at a critical juncture, having recently reached agreements with key creditors. Here are the remaining steps in this process and the potential outcomes depending on the political landscape following recent elections.

Remaining Steps in Debt Restructuring

1. Finalisation of Bilateral Agreements: Following the Memorandum of Understanding signed with the Official Creditor Committee (OCC) on June 26, 2024, Sri Lanka must now translate this agreement into individual bilateral agreements with each member of the OCC. This includes formalising arrangements with the Exim Bank of China and ensuring compliance with domestic regulatory requirements. Here is the link to a press release by the Central Bank of Sri Lanka regarding the debt restructuring process.
2. Implementation of Agreements: Successful implementation of these restructuring agreements is essential. This will provide a framework for negotiations with commercial creditors, including bondholders, which is crucial for achieving a comprehensive debt relief strategy that meets International Monetary Fund (IMF) targets.
3. Negotiations with Commercial Creditors: Sri Lanka continues to engage with its bondholders to finalize a restructuring agreement that aligns with the IMF's Debt Sustainability Analysis (DSA) targets. This involves ensuring that any agreements made are comparable to those reached with official creditors. It is worth noting that an agreement in principle has been reached with International Sovereign Bond holders and China Development Bank.
4. Monitoring and Compliance: The IMF will monitor the implementation of these agreements to ensure they align with the conditions set for accessing further financial assistance under its Extended Fund Facility (EFF) program.

Potential Outcomes Based on Election Results

The recent presidential election has introduced a significant variable into Sri Lanka's economic recovery strategy:

• Impact of New Leadership: The National People's Power (NPP) government, led by President Anura Kumara Dissanayake, had expressed intentions to renegotiate terms set by previous administrations, particularly those associated with the IMF. This could lead to alterations in existing agreements or delays in their implementation if more favourable terms are sought. More recently though, Anura Dissanayake has announced that IMF conditions will not be renegotiated but there is chance that targets will not be met in the near term. As such, we anticipate the government to request for longer timelines to meet IMF targets. This could also change if the NPP secures a majority in the parliament in the upcoming elections. For now, NPP holds only three seats in parliament.
• Economic Stability vs. Political Willingness: Assuming that the NPP secures a majority and if the NPP government prioritises renegotiation over adherence to current agreements, it may jeopardise ongoing negotiations with commercial creditors and affect international confidence in Sri Lanka's commitment to fiscal reforms. Conversely, maintaining the current agreements could stabilise relations with creditors and facilitate continued access to IMF support.
• Public Sentiment and Economic Reforms: The new administration faces pressure from constituents who have labeled previous IMF conditions as overly harsh. Balancing public sentiment while ensuring economic stability will be crucial. Failure to do so could lead to renewed economic instability, affecting debt sustainability targets necessary for long-term recovery.

The question was asked in relation to the following story: Opposition Gains Ground: The Changing Dynamics of Sri Lanka's 2024 Election