SUPPORTING THE RECOVERY AND BUILDING FOR THE FUTURE

1 SUPPORTINGTHERECOVERYANDBUILDINGFORTHEFU TUREFEBRUARY 20221 OVERVIEW , 19socialreliefofdistressgrantisextendedf or12months,withadditionalfundingforhealt h,educationandthepresidentialemploymenti nitiative. Aportionofhigher than ,governmentexpectstoachieveaprimarysurpl us whererevenueexceedsnon interestspending by2023/24, Giventherevenueimprovement, ,providesomerespitefromfueltaxincreasesa ndboostincentivesforyouthemployment. Governmentintendstosecurethebenefitsofam orestablefiscalpositionbyworkingtowardsa moreeffectivefiscalanchorintheouteryears ofthemedium termexpenditureframework(MTEF)period. , Amorerapidimplementationofeconomicreform s,complementedbyfiscalconsolidation, ECONOMIC OUTLOOK3 Economic growth in selected countries By the end of2022, developed countries will have returned to pre-pandemic output levels, but developing countries will not have fully recovered.

2 NewrestrictionsduetotheresurgenceofCOVID -19infectionstowardstheendof2021,alongwi thelevatedinflation,earlierwithdrawalofm onetaryaccommodation,withdrawaloftheUSfi scalsupportpackageandtheconsequencesofvo latilityinChina ECONOMIC OUTLOOK4 Macroeconomic performance and projections In2021,theeconomiceffectsofthepandemic lostjobsanddelayedinvestments wereexacerbatedbypublicviolenceandinadeq uateelectricitysupply,withthehighestleve lsofload-sheddingtodate. Risks to the domestic outlook include new COVID-19 variants leading to new waves of infection, continued interruptions in power supply, rising inflation and borrowing costs, and sizeable fiscal risks. Faster-than-expected global interest rate increases may also have negative consequences for the economy.

3 A DURABLE AND RESILIENT ECONOMY5 IntherecentStateoftheNationAddress,thePr esidentnotedthat thekeytaskofgovernmentistocreatethecondi tionsthatwillenabletheprivatesector bothbigandsmall toemerge,togrow,toaccessnewmarkets,tocre atenewproducts,andtohiremoreemployees . Reformsthatpromotegrowthandemploymentare neededtobuildontherecoveryobservedoverth epastyearincluding: Stimulatingdemandthroughinvestmentininfr astructure; Employmentprogrammes,taxincentivesandsoc ialtransfersthatwillboosthouseholdconsum ption; Easingtheskillsconstraint;and Modernisingnetworkindustrieswillsupporta nincreaseintheeconomy sproductivecapacity,boostelectricityprod uctionandreducethecostofdoingbusiness. Workisunderwaytoexpeditetheapprovalsrequ iredtoregisterembeddedelectricitygenerat ionplants,reviewthepolicyframeworkandpro cessesforworkvisascompletetheanaloguetod igitalmigrationandauctionspectrum, ON THE ECONOMIC RECOVERY PLAN6 Energysecurity:FifthbidwindowoftheREIPPP P rogrammeannouncedwithcontractedcapacityo f2583MW; AligningwiththeNationalDevelopmentPlan ,socialhousing,telecommunications,watera ndsanitation,andtransport.

4 Promotingindustrialgrowth:In2021,thestee l, ,improveproductivityandacceleratetransfo rmation. Transnethasdevelopedpartnershipswiththep rivatesectortoaddresscabletheftandvandal ismonthefreightrailnetworkthroughadvance dtechnologiesandadditionalsecurityperson nel. Strengtheningenablingconditions:Ateamtas kedwithcuttingredtapehasbeensetupinthePr esidencytoidentifypriorityreforms,includ ingmechanismstoensuregovernmentdepartmen tspaysupplierswithintherequired30daysand simplifyprocessesrelatingtopropertyregis tration, STRATEGY Medium termfiscalpolicyisfocusedonreducingthebu dgetdeficitandstabilisingthedebt to than anticipatedtaxrevenuetonarrowthedeficitw hileincreasingnon interestexpendituretosupporteconomicgrow th,jobcreationandsocialprotection.

5 ,ayearearlierthanprojectedinthe2021 MTBPS. Overthemediumterm, : Additionalallocationstoaddressimmediates pendingpressures,includingextendingthesp ecialCOVID 19socialreliefofdistressgrantfor12months untilMarch2023,andbolsteringprovincialtr ansfersforhealthandeducation. Settingasideaportionofhigher than servicecostsandimprovesthelonger termdebtoutlook. Supportingeconomicgrowththrougharangeofr eforms,includingtheinfrastructurebuildpr ogramme,financedthroughinnovativefunding mechanismsandsupportedbyimprovedtechnica lcapabilities. ,risingglobalborrowingcosts,thepossibili tyofhigherpublic servicewagecosts,andthepoorfinancialcond itionofseveralmajorstate ownedcompanies. Anylargepermanentincreasesinspending,suc hasanewsocialgrant, OF THE PUBLIC FINANCES , spending trends Inthe2013 Budget, ,policydecisionstoinstitutefee-freehighe reducationandabove-inflationpublic-servi cewageincreasescontributedtoawideninggap betweenrevenueandexpenditure, THE PUBLIC SERVICE WAGE BILL , Thedecisionnottoimplementthatfinallegoft he2018wageagreementandothermeasurestored uceaveragewagecostshaveimprovedthewagetr ajectory.

6 ,thesamegratuitywillbepaidin2022 Asindicatedinthe2020 Budget,compensationbaselineswillgrowatth erateofinflationfrom2024 , budget compensation of employees**Excludes public entitiesCHANGES IN TAX REVENUE SINCE 2021 BUDGET10 COVID-19resultedinelevateduncertaintyine conomicandfiscalforecasting,reflectedinl argerevisionstotaxrevenue. Taxrevenuecollectionsfor2021 Theupwardrevisionreflectsimprovementsinc orporateandpersonalincometaxes,value-add edtax,fuellevies,customsdutiesandspecifi cexciseduties. Assignaledinthe2021 MTBPS, gross tax revenue projections2022/23 TAX PROPOSALS ,whilefullyadjustingthepersonalincometax bracketsandrebatesforinflation. Theemploymenttaxincentiveisexpandedtoenc ouragebusinessestoincreaseyouthemploymen t. Thecorporateincometaxratewillreduceto27p ercentalongsidebasebroadeningmeasures,wh ichwillhavenoimpactonrevenue11 Impact of tax proposals on 2022/23 revenue1 CHANGES IN MAIN BUDGET NON-INTEREST EXPENDITURE Theprojectedrevenuecollectionprovidesspa ceforgovernmenttorespondtosomeimmediates pendingpressureswhilecontinuingtostabili sethepublicfinances.

7 Theadditionalresourcesin2021 to main budget non-interest expenditure over MTEF period ApartfromtheSRDgrantasignificantportiono ftherevisionsareforEducationandHealth,as wellasforInfrastructureinvestmentandpubl icemploymentFISCAL FRAMEWORK PROTECTS THE VULNERABLE AND PROMOTES GROWTH The2022 Budgetextendsgovernment ssupporttopoorandvulnerableSouthAfricans , ,growthandemployment. Mostnon interestspendingisdirectedtothesocialwag e,whichincludeshealth,education,housing, socialprotection, Akeyweaknessineconomicperformancehasbeen persistentlyhighjoblessness, termjobsunderthepresidentialemploymentin itiative. Governmentandinterestedpartiesareworking onasustainablelong termapproachtosocialprotectionconsistent withgovernment sbroaddevelopmentmandateandtheneedtoensu reaffordability.

8 Thecombinedimpactofstructuralreforms, , MAIN BUDGET DEFICIT NARROWS AND DEBT STABILIZES IN 2024/25 (MTEF) , ,ayearearlierandatalowerlevelthanproject edinthe2021 MTBPS. Onaverage,20centsofeveryrandcollectedinr evenueeveryyearwillbeneededtopaydebt-ser vicecosts. Governmentexpectstorealiseaprimarysurplu s whererevenueexceedsnon-interestexpenditu re by2023/24, budget balanceDebt as percentage of cent of GDPI nterest paymentsPrimary cent of GDP2021 MTBPSR evisedTHE CONSOLIDATED DEFICIT NARROWSOVER THE MEDIUM TERM Taxreceiptsfor2021/22haveexceededinitial expectationsandsomeoftheimprovedrevenuec ollectionisexpectedtocontinueovertheMTEF period. Overthenextthreeyears, Aconsolidatedbudgetdeficitof6percentofGD Pisprojectedfor2022/23, government fiscal frameworkCAPITAL TRANSFERS AND PAYMENTSGROW FASTER16 Average spending growth over the MTEF by economic classification, 2022/23 2024/25 Excluding interest payments, capital payments and transfers grow fastest.

9 Consolidated wage bill is projected to grow by an annual average of per cent over the medium TERM SPENDING PRIORITIES ,aswellasacrossfunctions, government expenditure, 2022/23 2024/25 Thebulkofthespendingisallocatedtolearnin gandculture( ),socialdevelopment(R1trillion)anddebt-s ervicecosts(R1trillion) , DIVISION OF REVENUE18 Relativetothe2021 Budget,allocationstoprovincialandlocalgo vernmentwillincreasetoassistwithurgentsp endingpressures. OvertheMTEF period,afterbudgetingfordebt servicecosts,thecontingencyreserveandpro visionalallocations, , of revenueFINANCIAL POSITION OF PUBLIC-SECTOR INSTITUTIONS In2020/21,state In2020/21,mostofthesecompaniesdeferredth eircapitalinvestmentprojectstopreserveca shtomeetshort termobligations.

10 ThefinancialpositionsoftheUnemploymentIn suranceFundandCompensationFundarestronga ndsettoimproveoverthemediumterm, financial position of public institutionsRISKS TO THE FISCAL than expectedglobalinflationcouldleadtohigher globalinterestrates,affectingdebt : Theweakfinancialpositionofseveralstate ownedcompaniesthatrelyongovernmentsuppor ttooperate. Apublic Additionalspendingpressuresfromnewspendi ngprogrammesortherealisationofcontingent liabilitieswouldaffectthesustainabilityo fthepublicfinances,andcouldrequirespendi ngcutselsewhere. Government ,persistentstructuralconstraintscontinue toinhibitthepaceoftherecoveryfromCOVID 19andlonger termgrowth. Sincethe2021 MTBPS,government sfiscalpositionhasimprovedasaresultofhig her than to GDPratiobyensuringthatspendingisprudenta ndsustainable.