SA’s debt at sustainable levels – Gordhan

The Minister of Finance, Pravin Gordhan, said today that South Africa’s debt-to-GDP ratio remains sustainable, despite having risen from 23% of Gross Domestic Product in 2007/8 to 39.3% of GDP in 2013/14.

Net debt is expected to reach 43.9% of GDP in 2016/17, but Gordhan presenting his Medium Term Budget Policy Statement assured South Africa and those that have loaned it money that debt had not reached unsustainable levels.

He also pointed that in a recent assessment, the International Monetary Fund (IMF) had reached the same conclusion.

The budget deficit is expected to come in at 4.2% for 2013/14, declining slightly to 4.1% in 2014/15, before falling to three percent in 2016/17.

While the budget deficit in the 2013 Budget was forecast as 4.6%, the 4.2% deficit is based on a new formula for government accounts – which is in line with IMF provisions and includes extraordinary receipts and extraordinary payments in the calculation of the deficit.

The borrowing requirement for the main budget is projected to increase from R168.5 billion in 2013/14 to R183.9 billion in 2014/15, before declining to R164.9 billion in 2016/17.

Interest payments are the fastest growing expenditure item over the next three years, growing to R140 billion in 2016/17 – higher than current spending on health care.

Compensation of public servants now accounts for 39.4% of the budget of non-interest spending and will continue to outpace inflation, but grow at a slower rate than over the past three years.

Gordhan said over the next three years the government’s debt management strategy will focus on minimising refinancing risk accommodate redemptions

The government will also continue to build cash reserves and continue to switch from short-term to longer-term debt is market conditions allow, he said.

The government’s contingency reserve is projected to grow from R3 billion in 2014/15, to R6 billion in 2015/16 and climbing to R18 billion in 2016/17.

The contingency reserve has been reduced from R7.5 billion over the next two years to respond to spending pressures.

As part of careful measures to restrict spending, Gordhan said state-owned companies are expected to borrow on the strength of their balance sheets, rather than be funded from the fiscus.

If capitalisation of the state’s core assets is required, state-owned entities will have to consider upfront disposal of non-core assets, while those state-owned companies that face persistent difficulties will have to undergo operational restructuring, he added. – Gordhan

Leave a Reply

Your email address will not be published.