Madam Speaker,

FISCAL PROJECTIONS FOR THE YEAR 2007

Madam Speaker, the 2007 Revenue and Expenditure Projections

131. 2007 marks the beginning of the medium term period for PRSPII implementation, and, therefore, fiscal policy guiding the 2007 budget is informed by the 1st year of the macroeconomic projections, and the other PRPS II objectives. The primary objective of Government policy continues to be the meaningful reduction in poverty. As a new Poverty Reduction and Growth Facility (PRGF) has already been negotiated with the International Monetary Fund (IMF) for commencement in January, 2007, the macroeconomic framework underlying the 2007 budget projections and allocations is based on the PRGF scenario, whilst noting also the scenario in the PRSP II.

132. Thus, the budget assumes a minimum real GDP growth of 4.5 percent, but expects that a 7 percent growth rate can be achieved, based on recent performance. This is complemented by an inflation rate of between 2.5 percent-3 percent, a fiscal deficit (including grants) of 0.2 percent, and gross official reserves of 4 months of import cover.

Revenue 2007

133. Total consolidated revenue and grants for 2007 stands at D4422.67 million, or 28.3 percent of GDP, a higher ratio compared to the 23.4 percent of GDP for the 2006 Budget total of D3353.55 million. Although projected total revenue rises by 5.6 percent to D3342.67 million from D3164 million in 2005, the largest increment is in total grants, from D189.28 million to a substantial D1.08 billion, an increase of some 470 percent. The grants include the substantial sum of D 813.65million from the European Union for road infrastructure development.

134. Projected tax revenue for the 2007 budget is D2973.47 million, an increase of 6.7 percent from the 2006 budget total of D2795.96 million. The breakdown shows that international trade taxes makes up the largest share of total tax revenue at D1462 million, followed by the direct tax at a total of D861 million, and then Domestic tax on Goods and Services at D582 million. The non-tax revenue is projected to increase marginally from the 2006 budget of D327.4 million to D348.3 million.

Expenditure 2007

135. Total expenditure and net lending for 2007 represents 28.2 percent of GDP, at D4408.34 million, and has risen by 17.9 percent above the 2006 figure of D3740.09 million. Current Expenditure is projected at D2909.22 million or 15 percent of GDP, which shows an increase of 4.6 percent over the 2006 figure of D2779.64 million. Of this amount, Personal Emoluments amount to D785.52 million, Goods and Services D851.41 million, Current Transfers D419.9 million, whilst Debt interest payments continues its annual downward trend, from D955.9 million in the 2006 budget to D846.35 million in 2007.

136. Capital Expenditure and Net Lending is projected at D1.9 billion, which is a significant increase from 2006 of D1153 million. This is explained by the increase in grant financing from D107 million to D903 million, which compensates for the comparative fall in loan financing of expenditures from D864million to D704million.

137. With a total consolidated revenue and grants figure of D4422.67 million, and total expenditure and net lending of D4408.34 million, the overall fiscal deficit of Government will improve from the 2006 budget figure of D662.5 million or 4.5 percent of GDP to a slight deficit of 0.2 percent of GDP. This contraction in the level of deficit is compatible with the ultimate aim of reducing the central Government's domestic borrowing requirements.

138. The financing components of the 2007 budget consists of net external borrowing of D703.7 million, and a net domestic borrowing of D314 million. Other items under financing include foreign amortization of D587.56 million; land sales of D20.9 million, and an arrears payment of D318.49 million.

-end.