UK slashes growth forecasts

British Chancellor of the Exchequer Philip Hammond poses for pictures with the Budget Box as he leaves 11 Downing Street in London, on Nov. 22, 2017, before presenting the government’s annual Autumn budget to Parliament. (AFP/Ben Stansall)
Updated 22 November 2017
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UK slashes growth forecasts

LONDON: Britain slashed its growth forecasts for its Brexit-bound economy and expects to borrow a lot more going into the next decade, the country's finance minister said on Wednesday as he delivered a gloomy budget statement in Parliament.
Slower economic growth will mean lower tax revenues for Philip Hammond to spend on the kind of bold moves that many in his Conservative Party — still smarting from an election mauling in June — had demanded.
But Hammond sought to show he could help voters by abolishing a duty for first-time buyers on the purchases of homes worth up to £300,000 ($397,500), keeping a freeze on fuel duty and spending more on the health service.
He also committed £44 billion to provide funding, loans and guarantees over five years in an effort to deliver 300,000 net additional homes per year on average by the mid-2020s, addressing Britain’s acute housing shortage.
Hammond said he had to keep his focus on fixing Britain’s public finances as he steers an economy growing only weakly — even when the global economy is picking up — through a challenging period as it prepares to leave the EU.
“We took over an economy with the highest budget deficit in our peacetime history,” he told Parliament.
“Since then, thanks to the hard work of the British people, that deficit has been shrinking and next year will be below 2 percent. But our debt is still too high,” he said.
But Britain’s official budget watchdog said the spending plans for the next two years were a “significant giveaway” as Hammond sought to cushion the Brexit slowdown.
At a time when inflation has risen sharply and wages have grown only slowly, many voters are increasingly angry about years of spending cuts in many areas of public services, something Hammond acknowledged in his speech.
“We understand the frustration of families where real incomes are under pressure,” he said.
He said that employment was expected to rise, that he would reduce the delays in receiving benefit payments that many families have suffered under changes to the welfare system.
Hammond also sought to help British businesses by slowing the pace of increase in the so-called business rates tax on the premises they occupy, and he raised a tax credit for research and development.
But the limitations on Hammond were clear as he said the war chest he wants to keep in reserve to help the economy had almost halved in size.
He said his so-called “fiscal headroom” — taking into consideration his budget targets — now stood at £14.8 billion, down from the £26 billion expected in March.
Britain’s budget forecasters now expect gross domestic product will grow by 1.5 percent in 2017, compared with a forecast of 2.0 percent made in March, reflecting a slowdown this year as the Brexit vote weighed.
The Office for Budget Responsibility saw growth in 2018 at 1.4 percent, down from its previous forecast of 1.6 percent, Hammond told Parliament.
Its revisions for later years were more acute: GDP growth forecasts in 2019 and 2020 stood at 1.3 percent in both years compared with 1.7 and 1.9 percent respectively seen in March.
“There is a recognition from the OBR that the growth outlook is dire at a time when the world economy is enjoying a synchronized upswing. Germany is enjoying a boom and even Italy is growing faster than the UK,” said Daiwa Capital Markets Europe’s Chris Scicluna.
The OBR had been expected to take a gloomier view after it said in October that it would lower its projections for productivity growth in the years ahead.
By 2021 and 2022, growth was seen picking up only slightly to 1.5 and 1.6 percent respectively.
Many lawmakers had called on Hammond to produce a bold budget to turn around the fortunes of Prime Minister Theresa May who lost her parliamentary majority in a failed election gamble in June, is struggling to make headway in Brexit negotiations with the EU and recently lost two ministers from her Cabinet.
Lower tax revenues and slower growth will add to the challenge of turning Britain’s budget deficit into a surplus by the mid-2020s.
Hammond said the OBR now expected Britain to borrow less this year and in the 2018/19 fiscal year but more in the following years as the slowdown in the economy bites.
Britain is expected to run a budget deficit of 1.3 percent of GDP by the 2021/22 financial year, almost double the previous estimate of 0.7 percent.
Before last year’s Brexit vote, Britain had been aiming to post a budget surplus by the end of this decade, itself a delay from an original target of fixing the public finances by 2015.
There was some better news for the public finances — Britain’s debt was expected to peak at 86.4 percent of GDP this year — about double its level before the global financial crisis — before falling in the coming years.
The OBR budget forecasters said the fall in net debt was largely achieved by the sales of shares in state-run bank RBS and by an accounting switch to get the debt of housing associations off the government’s books.


Oil-rich South Sudan seeks investment in fragile new peace

Updated 22 November 2018
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Oil-rich South Sudan seeks investment in fragile new peace

  • The country is eager to make up for $4 billion in lost revenue caused by the five-year conflict
  • The government is offering prospective investors incentives such as a tax-free grace period of up to 10 years

JUBA, South Sudan: South Sudan is making its first big foreign investment pitch since declaring an end to civil war, but the oil-rich nation faces hesitation from some companies that want to make sure the fragile new peace deal holds.
The country is eager to make up for $4 billion in lost revenue caused by the five-year conflict after the government and armed opposition signed a power-sharing agreement two months ago.
Tapping 3.5 billion barrels of oil reserves, the third largest in Africa, is the fastest route for South Sudan, whose economy is almost entirely dependent on oil exports.
“Do business or get out,” South Sudan’s petroleum minister, Ezekiel Lol Gatkuoth, said in an interview with The Associated Press on Wednesday.
More than 400 international and local companies are attending this week’s Africa Oil & Power Conference in the capital, Juba, up from the 300 that attended the initial conference last year.
The government is offering prospective investors incentives such as a tax-free grace period of up to 10 years. It hopes to build on the momentum created in August when drilling resumed in key oil fields for the first time since 2013. The aim is to return to the pre-conflict production of 350,000 barrels per day.
Some at the investment conference expressed cautious optimism after preliminary signs of growth.
Earlier this year Russian oil company Zarubezhneft signed a memorandum of understanding with South Sudan’s oil ministry to explore the 10 oil blocks that remain open. The government is also speaking with Russia’s third largest oil producer, Gazprom Neft, and Rosneft.
Those already licensed to operate in the newly reopened oil fields in Unity State are China National Petroleum Corporation, India-based Oil and Natural Gas Corporation and Malaysia-based Petronas.
And early next year local oil marketing company Trinity Energy will begin building East Africa’s only oil refinery, a $350 million project that will take about 18 months to complete. It will be able to produce 25,000 barrels per day. Currently South Sudan exports its crude oil, only to buy it back.
“South Sudan is a fantastic blank canvas ... because we see that the demand is here,” said Pearl Uzokwe, director of governance and sustainability at the Sahara Group, a Nigerian energy and infrastructure company that recently signed a memorandum of understanding with the government.
However, she said, it’s important for South Sudan’s government to create an enabling environment.
Past peace deals, as well as power-sharing arrangements between President Salva Kiir and armed opposition leader Riek Machar, have collapsed amid fresh fighting.
One analyst said most of his clients, especially Western ones, are taking a “wait and see” approach even as the mood seems positive.
“They’re not willing to commit to anything right now,” Shawn Robert Duthie, senior analyst for Africa Risk Consulting, told the AP. Many are worried about their reputational risk, he said. South Sudan’s oil sector has faced scrutiny for allegedly using oil revenues to fuel the civil war.
If the new peace deal can last a year without any huge flare-ups and if Kiir and his returning deputy Machar can work together it might help in bringing more people to the table, Duthie said.