Cape Town - South Africa will introduce two new fixed-income and three inflation-linked bonds in 2012/13 to smooth the maturity structure of its debt, the National Treasury said on Wednesday.
In its 2012/13 budget, the Treasury said the fixed-income bonds would have 11-year and 36-year maturities while the inflation-linked bonds would mature in 13, 26 and 39 years respectively.
“Increased demand for inflation-linked bonds, together with higher-yielding long rates, suggests an expectation of higher inflation over the long term,” it said.
The government’s net borrowing requirement was expected to reach R168.8bn from R152.7bn in 2011/12 while state-owned entities would borrow an estimated R76.9bn to fund infrastructure projects.
“After increasing in line with budget deficits, government’s net debt stock is expected to peak at 38.5%of GDP (gross domestic product) in 2014/15,” the Treasury said.
Over the next two years, domestic long-term loan issuance would average R151.2bn before decreasing to R142.3bn in 2014/15.
Large primary deficits since 2009 have resulted in a considerable build-up of public debt. By 2014/15, government will have added more than R1 trillion to its debt stock since 2008.
Current weekly auction levels in domestic bonds would be broadly maintained in 2012/13 while the introduction of Islamic bonds was also under consideration, the Treasury added.
Because of prudent macroeconomic policies, and deep and liquid capital markets, South Africa has been able to finance its main borrowing requirements in the domestic market.
But Treasury said it intended to borrow $3bn in global markets over the medium term to maintain benchmarks in major currencies and meet part of its foreign currency commitments.
To reduce near-term exposure to refinancing risk, the government would continue to use “switch auctions” to exchange maturing bonds before due date for longer-dated bonds, the Treasury said. It would also consider switches for foreign bonds.