Developments in 1998/99

15. The fiscal deficit for the national government was 2.6 percent of GDP in 1998/99, down from 3.9 percent in 1997/98, and compared with a budget projection of 3.1 percent of GDP, as a result of larger-than-expected revenue collections.⁷ Revenue grew by almost 13 percent to 24.4 percent of GDP, compared with a growth rate of 9 percent envisaged in the budget; personal income taxes were 9 percent higher than the budget estimate and accounted for over 90 percent of the unanticipated revenue. The strength of personal income tax collection was due to efficiency gains in tax administration and the broadening of the tax base. The other revenue surprise was in corporate tax receipts from the mining companies; as a result of the depreciation of the rand and cost savings associated with the closure of mines, these receipts rose by almost 60 percent and accounted for about 10 percent of the unanticipated rise in revenue. However, overall corporate income tax receipts were just 2 percent greater than projected, reflecting lower revenue from the nonmining companies caused by the weaker economic activity. This factor also resulted in lower-than-projected indirect tax collections. However, value-added taxes were slightly greater than projected, and the authorities attributed this to more effective tax administration at border posts to curtail fraud.

16. Expenditure in 1998/99 was 27 percent of GDP, which was slightly higher than projected at the time of the budget, but still 0.3 percentage points of GDP lower than in 1997/98. The unanticipated pressure on spending came mainly from interest payments and additional transfers to provinces, as the wage bill and other current spending was in line with the budget.

17. As mentioned above, the fiscal position of the provincial governments moved from a deficit of 0.9 percent of GDP in 1997/98 to a surplus of 0.4 percent in 1998/99. Overall, expenditure increased by under 2 percent in nominal terms from 1997/98, but declined in terms of GDP, from 13.5 percent to 12.7 percent. A financial management improvement program—coordinated at the national government level—was established to monitor expenditure in each province on a monthly basis, appoint qualified personnel, train financial managers and improve reporting and oversight procedures. While transfers from the national government were raised to better cover certain outlays, provinces improved their management and control of expenditure and thus were able to curb unwanted expenditure. Several provinces also launched anti-fraud units.

18. In the Eastern Cape and Kwazulu-Natal, where the fiscal imbalances in 1997/98 were particularly serious (with deficits of 0.2 percent of GDP and 0.3 percent of GDP, respectively), the national government intervened directly in the fiscal management of these provinces.⁸ In exchange for additional funding at the end of 1997/98 (which was needed to partially repay various creditors, including bank overdrafts), the government imposed certain administrative reforms (e.g., procurement procedures, personnel management) and steps to contain expenditure. Both provinces subsequently recorded surpluses in 1998/99 and have programmed further surpluses in the next few years to allow them to pay off their remaining debts.

19. The fiscal deficit of the local governments was unchanged in 1998/99 at 0.1 percent of GDP.⁹ Although continuing to face financial challenges, the authorities report that local governments are beginning to stabilize their financial positions through improved expenditure management, greater efforts to collect own revenue, and programs initiated by the national and provincial governments. The provincial government officials responsible for local government have used the powers vested in them in terms of the Local Government Transition Act (1993) to instruct municipalities facing financial difficulties to take corrective action. One aspect of such action has been the establishment of the Management Support Program, which aims to build capacity and financial management systems in the municipalities to help them restore their financial viability. The national government has backed this project by providing funding.

20. Led by the strong improvement in the finances of the national government and provincial governments, the deficit of the consolidated general government fell from 5 percent of GDP in 1997/98 to 2.4 percent in 1998/99, with spending falling to its lowest level in 15 years as a percent of GDP (Figure 3, and Table 1). However, the overall borrowing requirement of the nonfinancial public sector rose from 4.4 percent to 4.8 percent, mainly because of the large losses incurred by the Reserve Bank in its forward market operations and an increase in the borrowing requirement of the nonfinancial public enterprises. The latter shifted from -0.3 percent of GDP in 1997/98 to 0.5 percent in 1998/99 because of the substantial increase in capital expenditures by the airline and telecommunications companies.

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South Africa: Government Finances, 1990/91-1999/00 1/

(In percent of GDP)

Citation: IMF Staff Country Reports 2000, 042; 10.5089/9781451840957.002.A001

sources: Department of finance; South African Reserve Bank; and Fund staff estimates1/ Fiscal year ending March 31, Budged data for 1999/002/ Excludes extraordinary transfers.3/ Excludes extraordinary revenue such as sales of strategic stocks of oil and privatization receipts.4/ Includes stamp duties and fees.5/ Total expenditure by national and provincial governments.6/ Data before 1992/93 not available

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Table 1.

Consolidated General Government Finances

(In percent of GDP)

Sources: Department of Finance; Reserve Bank; and Fund staff estimates

^1/Extrabudgetary institutions (e.g., universities, technikons) and social security funds.

Table 1.

Consolidated General Government Finances

(In percent of GDP)

		1994/95	1995/96	1996/97	1997/98	1998/99
Total revenue and grants		28.0	27.6	28.1	28.2	29.2
Total expenditure and net lending		33.6	32.5	33.2	33.1	31.5
	Current expenditure	30.4	29.4	30.8	30.1	28.9
	Capital spending	3.2	3.0	2.4	3.0	2.6
Overall balance		-5.6	-4.9	-5.1	-5.0	-2.4
	National Government	-5.1	-5.0	-4.5	-3.9	-2.6
	Provinces	-0.3	0.2	-0.4	-0.9	0.4
	Local authorities	-0.1	-0.1	-0.1	-0.1	-0.1
	Other 1/	-0.1	0.0	-0.1	-0.1	-0.1

Sources: Department of Finance; Reserve Bank; and Fund staff estimates

^1/Extrabudgetary institutions (e.g., universities, technikons) and social security funds.

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Table 1.

Consolidated General Government Finances

(In percent of GDP)

		1994/95	1995/96	1996/97	1997/98	1998/99
Total revenue and grants		28.0	27.6	28.1	28.2	29.2
Total expenditure and net lending		33.6	32.5	33.2	33.1	31.5
	Current expenditure	30.4	29.4	30.8	30.1	28.9
	Capital spending	3.2	3.0	2.4	3.0	2.6
Overall balance		-5.6	-4.9	-5.1	-5.0	-2.4
	National Government	-5.1	-5.0	-4.5	-3.9	-2.6
	Provinces	-0.3	0.2	-0.4	-0.9	0.4
	Local authorities	-0.1	-0.1	-0.1	-0.1	-0.1
	Other 1/	-0.1	0.0	-0.1	-0.1	-0.1

Sources: Department of Finance; Reserve Bank; and Fund staff estimates

^1/Extrabudgetary institutions (e.g., universities, technikons) and social security funds.

Developments in 1999/2000

21. The 1999/2000 budget for the national government targeted a deficit of 3.1 percent of GDP. Revenue was projected to decline by 0.5 percent of GDP to 23.8 percent, mainly as a result of tax changes in the personal and corporate income taxes (see below), while expenditure was budgeted to decline by 0.4 percent of GDP to 26.9 percent, consistent with further wage restraint.

22. In October 1999, the national government announced a revised deficit target of 2.8 percent of GDP, on the basis of better-than-projected results for the first half of the fiscal year; revenue was over 8 percent higher in the first half of 1999/2000 than in the corresponding period in the previous year (compared with a budgeted increase of around 6 percent for the whole year) and expenditure was up by just under 7 percent (compared with a budgeted increase of about 6 percent). Government has been engaged in a pay dispute with the civil service; the dispute is currently in arbitration. In the first half of the fiscal year, the provinces had a balanced budget, while the nonfinancial public enterprises had a surplus of 0.2 percent of GDP (on an annualized basis).

23. The medium-term expenditure framework (MTEF) envisages a reduction in the budget deficit to 2.4 percent of GDP in 2002/03, with the overall tax burden declining further to 23.5 percent of GDP. After a substantial redistribution of expenditure since 1994, in which relative allocations to defense and general administration were reduced while those to social programs (education, health, and welfare) and the integrated justice sector (justice, police, and prisons) were raised, the MTEF will feature more balanced growth of the various functional categories over the 1999/2000-2002/03 period.

24. In the case of defense, however, the recently signed defense equipment procurement program would imply that the defense allocation rises from 7 percent of noninterest expenditure in 1998/1999 (equal to 1.4 percent of GDP) to over 8 percent in 2002/2003 (1.7 percent of GDP). The purchase agreement, which was signed with a number of European suppliers, and involves the purchase of helicopters, ships, submarines, and fighter airplanes, is expected to cost R 21-R 30 billion (constant 1999 prices) over 8-14 years (or about 0.3 percent of GDP per year). Suppliers have pledged investments in South Africa, which the authorities estimate would generate R 70 billion in economic benefits over an eleven-year period

Tax changes in 1999/2000

25. The 1999/2000 budget introduced a number of tax changes in the personal and corporate income tax areas, as well as new levies and adjusted excise duties (Table 2). For the personal income tax, the primary rebate was increased so as to raise the tax threshold by the projected rate of inflation; and the secondary rebate, which applies to persons 65 years old or greater, was also increased for the same reason. These changes prevented tax bracket creep and a consequent increase in effective tax rates but were estimated to imply a loss of potential revenue of R 3 billion. In addition, the brackets of the personal income were restructured so that marginal tax rates applicable to incomes in the range of R 46,000- R 70,000 were reduced from 39-43 percent to 30-40 percent. The loss of revenue associated with this change was estimated at R 1.9 billion.

Table 2.

Summary of effects of tax proposal, 1999/00

(In millions of rand)

Sources: Department of finance, Budget review, 1999

Table 2.

Summary of effects of tax proposal, 1999/00

(In millions of rand)

Total ordinary revenue (first print)			193,829.8
Budget proposals			-6,273.8
Personal income tax
	Adjustment of table, rates and bracket restructuring	-4,850.0
Corporate income tax
	Reduction in the normal company rate from 35 to 30 percent	2,510.0
Excises
	Increase in duties on beer, wines, spirits and ciders	179.4
	Increase in duties on tobacco products	495.0
	Reduce duties on soft drinks by 2.83 cents per liter	-56.0
	Fuel levy increase by 4 cents per liter	472.0
	Ad valorem tax base rationalizing	35.0
Marketable securities tax
	Withdrawal of exemption to Public Investment Commissioner	20.0
Stamp duty
Elimination for certain items, increase for customs, excise documents		1.2
Transfer duty (real estate)
	Restructuring of tax table	-55.8
	Increase in exemptions	-4.6
Efficiency gains in tax collection			2,700.00
Total ordinary revenue (second print)			190,256.0

Sources: Department of finance, Budget review, 1999

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Table 2.

Summary of effects of tax proposal, 1999/00

(In millions of rand)

Total ordinary revenue (first print)			193,829.8
Budget proposals			-6,273.8
Personal income tax
	Adjustment of table, rates and bracket restructuring	-4,850.0
Corporate income tax
	Reduction in the normal company rate from 35 to 30 percent	2,510.0
Excises
	Increase in duties on beer, wines, spirits and ciders	179.4
	Increase in duties on tobacco products	495.0
	Reduce duties on soft drinks by 2.83 cents per liter	-56.0
	Fuel levy increase by 4 cents per liter	472.0
	Ad valorem tax base rationalizing	35.0
Marketable securities tax
	Withdrawal of exemption to Public Investment Commissioner	20.0
Stamp duty
Elimination for certain items, increase for customs, excise documents		1.2
Transfer duty (real estate)
	Restructuring of tax table	-55.8
	Increase in exemptions	-4.6
Efficiency gains in tax collection			2,700.00
Total ordinary revenue (second print)			190,256.0

Sources: Department of finance, Budget review, 1999

26. The corporate tax rate was reduced from 35 percent to 30 percent to bring the South African rate more in line with international levels, and thus to make the country more attractive to investors.¹⁰ In addition, the tax on South African branches of foreign-owned companies was reduced from 40 percent to 35 percent and the rate applicable to company policy holder funds held by insurance companies was reduced from 35 percent to 30 percent. The estimated loss of revenue from these measures was R 2.5 billion. To reduce the distortions in the system and broaden the tax base, the budget eliminated the tax incentives pertaining to certain tax holiday schemes and the accelerated depreciation allowances for investments in manufacturing companies effective September 1999.

27. As has been the annual practice for many years, the budget included increases to specific excise duties in order to adjust for inflation. For tobacco products, the government has followed a policy over the past several years of raising excise duties by more than expected inflation. In the 1998/99 budget, excise taxes were increased so as to raise the ratio of tax to retail price from 45 percent in the case of cigarettes (or lower in the case of other products) to 50 percent. In the case of other products, particularly with respect to alcohol products, an attempt was made to move excises in line with international benchmarks, subject to revenue considerations.

28. The budget introduced a skills development levy on payrolls, at a rate of 0.5 percent beginning in 2000/01 and increasing to 1 percent in following years, in order to finance the skills development initiative envisaged in the Skills Development Act (see Section II for details). It also converted the existing surcharge on the price of electricity, which was being used to finance the electrification program for previously disadvantaged communities, into a dedicated electrification levy. The change would enhance the transparency of the program and its financing, but would not involve any change in the overall level of funding to the program (R 1.5 billion) or the price of electricity.

Money and credit

30. The turbulence in the foreign exchange markets in mid-1998—which was mainly related to the contagion from the Asian crisis—also affected liquidity conditions and the money markets in South Africa. The 12-month growth rate of broad money (M3) peaked at 19 percent in June 1998 (its highest level in the 1990s), and the growth rates in more narrow monetary aggregates were even higher (Figure 4). This development reflected, in part, a reduction in interest rates in early 1998, but also a shift in investor preferences from equity and bond markets to more liquid investments, as well as increased transactions demand for money as the turnover in the equity and bond markets rose sharply.¹¹

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South Africa: Monetary Indicators and Interest Rates, 1995-99

Monetary aggregates(12-month percentage change)

Citation: IMF Staff Country Reports 2000, 042; 10.5089/9781451840957.002.A001

Sources: South Africa Reserve Bank, Quarterly Bulletin

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31. The South African Reserve Bank tightened monetary policy in mid-1998, and calm returned to the financial markets starting in the fourth quarter of 1998. In this context, money growth slowed; by the end of 1998, the 12-month growth rate in M3 was 15 percent, and by March 1999 it was below 10 percent. Since then, the growth rate has remained within the South African Reserve Bank’s (SARB) informal guideline range of 6-10 percent. The slowdown in growth in broad money can be explained by a reversal of earlier behavior on part of the investors, i.e., as expectations of a recovery in the bond and equity markets emerged, there was a shift away from depository type of investments with a relatively low return but low risk into investments in riskier assets. This decline in liquidity preference is consistent with an even sharper fall in the growth rate of more narrow monetary aggregates, such as Ml (see Figure 4). Other contributing factors to the slowdown in money growth in 1999 included lower inflation and inflation expectations, and the low levels of economic activity.

32. The counterpart to the R 33 billion increase in broad money in the 12-month period through September 1999 was increases in net domestic assets of the banking system of R 22 billion and in net foreign assets of R 11 billion. The increase in net domestic assets was mainly due to credit extension to the private sector, which grew by 11½ percent during this period (12-month rate). However, as with the growth in broad money, the rate of private sector credit expansion has fallen almost continuously since the end of 1998 (the 12-month growth rate was 8 percent by November 1999, compared with 17 percent by end-1998). In particular, credit extension to households increased by only 4 percent between September 1998 and September 1999, compared with 7½ percent a year earlier, mainly reflecting the high interest rates that prevailed after the turbulence in the financial markets and the generally weak economy. The most interest-sensitive components of credit extension, such as leasing finance and installment sales, were virtually flat during 1999 (see Figure 4). Also, mortgage loans grew by only 4 percent between November 1998 and November 1999, compared to 10 percent during 1998. The small expansion of mortgage loans not only reflected the high interest rates of early 1999, but was also the result of a new bank supervisory regulation, which prescribed an increase in the banks’ risk weighting of the portion of a new mortgage loan that exceeded 80 percent of the value of the property collateralised.¹²

33. One credit category that continued to show robust growth in 1999 was “other loans and advances,” although the growth in this form of credit also slowed (from a 12-month rate of 31 percent by December 1998 to 17 percent by November 1999). The major component of this type of credit was corporate sector lending, and reflected aspects such as additional borrowing by companies in distress to help them through a period of relatively slack demand, continued high activity in the financial market, and increased corporate restructuring. As a consequence of these developments, the share of credit to the corporate sector increased from 46 percent in September 1998 to 50 percent in September 1999.

Interest rates

34. Long-term bond yields continued their general downward trend in the first four months of 1998, in part reflecting non-residents’ strong demand for South African assets amid growing expectations of a further easing of monetary policy and further declines in inflation expectations. However, contagion effects from the Asian crisis led to a sharp reversal of this trend in May 1998, as investor sentiment changed dramatically and large- scale portfolio shifts took place.¹³ As a result, long-term interest rates rose by 540 basis points between end-April and end-September 1998 to about 18 percent, and the rand depreciated considerably. The authorities responded to the unsettled conditions by tightening monetary conditions, causing short-term interest rates to rise by 700 basis points to nearly 22 percent during the same period,¹⁴ and by intervening heavily in the foreign exchange markets in May and June. Thus, the yield curve shifted upwards and its slope became sharply negative.

35. The turbulence in the financial markets receded in the last few months of 1998, and the SARB started to cautiously allow for a reduction in short-term interest rates. Markets viewed the easing of monetary conditions as appropriate, as evidenced by some strengthening in the value of the rand, a return of capital inflow (albeit small), and a fall in long-term interest rates. The fall and flattening out of the yield curve continued in 1999, and the repo rate fell below its pre-crisis level by June. This trend was facilitated by more stable global conditions in emerging markets, as well as by lower inflation expectations and the maintenance of a prudent fiscal policy, which led to a favorable sentiment regarding the overall economic conditions in South Africa.

36. The downward movement in interest rates was temporarily halted in May 1999 owing to pre-election nervousness among investors and a falling gold price in the world markets. Following the election and a recovery in gold prices, the SARB continued to allow a reduction of the repo rate to 12 percent by November 24. The SARB kept the repo rate fixed at that level (due to Y2K concerns) until January 14, 2000, when it allowed it to drop by another 25 basis points to 11.75 percent. Long-term government bond yields fell by nearly 400 basis points between September 1998 and March 1999, but remained in the range of 14½ -15½ percent between March and November 1999, reflecting lingering concerns about the inflation outlook as core inflation remained at about 8 percent throughout most of 1999. Hence, although long-term interest rates fell somewhat toward the end of 1999 (the long-term yield was 13.3 percent as of January 14,2000), the yield curve obtained a positive slope during 1999.

Monetary policy procedures

37. The SARB changed its operational procedures for providing banks with short-term liquidity in March 1998; a repurchase auction system was introduced whereby banks tender on a daily basis for liquidity provided by the Reserve Bank.¹⁵ Some adjustments to the system have been made over the last year in order to smooth unintended fluctuations in liquidity and enhance interbank activity. Final clearing (“square-off’) auctions were introduced in April 1999, at which an oversupply or undersupply of liquidity is adjusted by an additional final clearing repo auction (or reverse repo auction in the case of oversupply). Such a clearing auction occurs at the discretion of the SARB and only if there is a “sizeable” and unintended over- or under-provision of liquidity. The SARB also introduced certain limits on the banks’ deposits in the Cash Reserve Contra Accounts (CRCA), which effectively limited the possibility for banks to use monthly averaging of required reserve holdings.

38. The SARB also used open market operations to affect liquidity conditions and thereby influencing the marginal impact of the repo auctions. In addition to buying and selling government bonds, the SARB started issuing short-term Reserve Bank debentures in September 1998. The maturity of the debentures is 28 days, and the outstanding stock was gradually increased in 1999 to R 5 billion by end-June. The main purpose for issuing the debentures was to withdraw liquidity from the market and increase the banks’ reliance on the repo auctions. The secondary market for the debentures has been limited. Out of Y2K concerns, the SARB injected liquidity in the market toward the end of 1999 by reducing the stock of SARB debentures to R 1 billion.

The current account

40. The external current account deficit declined to 0.2 percent of GDP during the first three quarters of 1999, compared with about 1½ percent of GDP in each of the preceding four years. The lower deficit mainly reflected a sharp reduction (by 2 percentage points of GDP) in imports of goods and services.

41. Exports and imports shrank in the first three quarters of 1999. In U.S. dollar terms, exports of goods and services fell by 7 percent (year-on-year), following a 6 percent decline in 1998. Non-gold merchandise exports declined by 6 percent, gold exports by 16 percent, and services receipts by 6 percent. On the imports side, there was a large drop of 12 percent, following a 6 percent drop in 1998. Merchandise imports fell by 13 percent, while services payments declined by 6 percent. However, both exports and imports started to recover during 1999.

42. The slowdown in trade in 1999 partly reflected an easing in volumes: total exports (goods and services) declined by 2 percent (year-on-year) in the first three quarters of 1999 (compared with an increase of 2½ percent in 1998), while imports dropped by 8½ percent (after an increase of 2 percent in 1998). The slowdown in exports reflected weak production in the manufacturing and mining sectors and weak demand by trading partners, while the slowdown in imports partly reflected the slowdown in domestic demand, which fell by almost 1 percent (year-on-year) in the first three quarters of 1999, and in particular the steep decline in investment by public corporations—following the completion of the investments by the public enterprises (which had a high import content) in late 1998—and by the private business sector.

43. The deficit in the income balance, at 2 percent of GDP in the first three quarters of 1999—unchanged from 1998—reflected a significant decline in both income receipts and income payments. However, both income receipts and income payments strengthened during 1999. The deficit in the transfer balance, at almost 1 percent of GDP in the first three quarters of 1999, was slightly higher than in 1998.

The exchange rate and the terms of trade

44. The nominal effective exchange rate (INS measure) fell by about 9½ percent (year-on-year) in 1999, following a decline of about 14 percent in 1998. In real effective terms, the rand depreciated by about 5 percent in 1999, following a 9 percent fall in 1998. The depreciation took place entirely between April 1997 and September 1998. During this 17-month period, the exchange rate depreciated by 26 percent in nominal effective terms, with over half of the overall depreciation occurring in a single month—July 1998 (see Figure 5). Since September 1998, the exchange rate was relatively stable in nominal effective terms, appreciating slightly in real terms. The terms of trade fell by 1 percent (year-on-year) in the first three quarters of 1999 (following a marginal increase in 1998), due entirely to adverse developments in gold prices.¹⁶

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Exchange Rate Developments, 1995-99

Citation: IMF Staff Country Reports 2000, 042; 10.5089/9781451840957.002.A001

Sources: South African reserve Bank; and IMF, Information Notice System

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The capital account and the international investment position

45. Net capital inflows (including unrecorded transactions) amounted to more than US$2 billion during the first three quarters of 1999. This represented an increase of 140 percent (year-on-year), albeit from a low base. Inflows of direct investment increased by 39 percent, although they still remained at relatively low levels (US$1 billion during the first three quarters of 1999), after dropping sharply in 1998. Inflows of portfolio investment also increased significantly (partly caused by the activities of the government in international capital markets, including a number of foreign currency bond issues), while inflows of other investment (loans, trade finance arrangements, bank deposits, and other mostly short-term liabilities) declined to negative levels.

46. The balance of payments was in surplus during 1999, enabling an increase in gross official reserves by US$2 billion to US$7.4 billions, after declining by US$½ billion in 1998. More significantly, the Reserve Bank’s net open forward position was reduced by US$9½ billion in 1999 to US$13 billion by end-December, after increasing by more than US$6 billion in 1998 (mainly at the time of the exchange market pressures in May-June 1998).

47. The international investment position improved significantly in 1998, with net foreign liabilities decreasing by about US$8 billion to less than US$14 billion (10 percent of GDP) at end-1998. Foreign assets rose by US$10 billion, while foreign liabilities increased by only US$2 billion. Both assets and liabilities increased mainly on account of stronger portfolio investment.

48. External debt totaled almost US$39 billion (29 percent of GDP) at end-1998, a slight decrease from end-1997. Foreign currency denominated debt totaled US$25 billion, of which 57 percent was short-term (on a remaining maturity basis). Between end-1998 and end-June 1999, foreign currency denominated debt remained broadly unchanged at US$25 billion.

Capital control liberalization

49. South Africa has followed a strategy of progressively easing exchange controls since 1994, reflecting the government’s commitment to the eventual abolition of all controls on capital transactions; considerable progress in meeting this goal has been made in recent years.^{17 18} With the abolition of the financial rand mechanism in 1995, virtually all exchange controls on nonresidents were eliminated. Nonresidents are now able to purchase shares, bonds and other assets without restriction and to repatriate dividends, interest receipts and current and capital profits, as well as the original investment capital. Nonresidents are also free to hold rand accounts in the banking system, but they are constrained on the amount they may borrow domestically. This constraint has been relaxed, however, and only organizations with more than 75 percent nonresident ownership are subject to limits on their domestic borrowing.

50. Exchange controls on residents have been considerably relaxed. Rather than allowing complete liberalization of a particular type of current or capital transaction, while others remained prohibited, the authorities have pursued a strategy of allowing an increasing array, of transactions, with each subject to a quantitative cap. These caps have been progressively raised over time, to the point where many have become nonbinding and, in some cases, abolished.

51. The limit on foreign exchange holdings by authorized dealers has been eliminated, although they continue to be subject to prudential regulations. There are no controls on the transfer of funds arising from the import or export of goods and services, although the foreign currency proceeds from exports must be repatriated to South Africa within 180 days. South African corporates are allowed to invest up to R 50 million abroad, except for investments in S ADC countries where the cap is R 250 million. Institutional investors in South Africa (insurance companies, pension funds, and unit trusts) are permitted to invest up to 15 percent of their assets in foreign securities via asset swap arrangements with nonresidents. Private individuals are allowed to invest up to R 500,000 offshore.

52. In the 1999 budget, the following changes to capital control regulations were announced.

• Residents were permitted to make credit card purchases of imports (e.g., purchases via the Internet) of up to R 20,000 per transaction.

• The annual limits for a single student were raised to R 120,000 for living expenses and R 35,000 for travel expenses, in addition to tuition and academic fees.

• The travel allowance for single emigrants was raised to R120,000, together with a settling-in allowance of R 200,000