tune of R385 billion as payment of FY12 dues. Given current oil prices, losses being made by oil companies are estimated at R1,670 billion. Similar to past trends, our base case assumes the governments share at 60% (i.e R1,000 billion) and a 50% deferral to FY14 (R500 billion). The deficit could be lower if the government changes the subsidy-sharing mechanism and/or defers a higher amount for FY14.
As regards revenues, while tax collections have picked up in the last quarter, on a cumulative basis, collections are well below budget estimates. We have factored in a slippage of R300 billion on tax collections as the budget estimates are based on real GDP growth of 7.6% whereas latest government data pegs growth at 5%. While tax collections are likely to come in below budget estimates, market-based revenue items, i.e. non-tax revenues as well as divestment proceeds, could come close to targets.
On divestments, including the recent success of OIL and NTPC, the government has raised about R230 billion of its R300 billion divestment target. The over-subscription of both PSUs was attributed to the modified ‘investor friendly’ divestment norms (i.e. 0% margin, indicative pricing throughout the day, and attractive terms). Continuation of this could enable the success of the other upcoming issuances, which will thus help the government to meet its targets.
As regards non-tax revenues, 2G spectrum telecom revenues raised so far are R94 billion versus an anticipated amount of R400 billion. The government has now lowered the price and scheduled the re-auction for March 11, 2013. If it is successful, the government could raise R100 billion and an additional R100 billion from excess spectrum charges. Another possibility on the non-tax revenue front is higher dividend pay-outs by PSUs.
Bottom line: The recent fuel price reforms, coupled with steps to contain expenses, bode well for the government’s commitment towards fiscal consolidation. However, key to note is that deficit ratios, which are calculated as a percentage of nominal GDP, could be impacted given the CSO’s advance GDP estimates of 5% for FY13. This puts the government’s 5.3% fiscal deficit target at risk but to a lesser extent