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Johannesburg - Over the past eight years the interest on South Africa's State debt has dropped from 5.6% of gross domestic product to 3% for the fiscal year to end-March this year. However, before the 2010 Soccer World Cup kick-off that commitment could be as little as 2.5% of GDP.
The R60bn or more of savings that had to be used previously to pay interest explains in part why it's becoming increasingly easy for the State to provide the massive planned spending on infrastructure over the next few years.
The fall in interest on State debt as a percentage of GDP is caused by several events. First, the State needs fewer loans because its fiscal deficit before loans reduced every year over the past decade - so much so that a R9bn surplus was budgeted for 2007/2008.
The second reason is, of course, that interest rates have dropped.
That was partly the result of the State's falling loan requirements, as well as the successful monetary policy keeping SA's inflation rate in check.
SA's creditworthiness
The fiscus is now in the favourable position of being able to replace maturing old loans with cheaper money each year. For example, government bonds with a nominal value of R30.7bn are maturing in the 2007-2008 fiscal year.
Of that, the R194 makes up R22.6bn. That's the last leg of the old R150, the government bond on which so many of the current generation of capital market dealers learned the ropes.
That bond carried a coupon rate of 10%/year. The State can now easily borrow long-term money at 7.5%/year.
Old debt, costing 10%/year, is now increasingly being replaced by new debt at only 7.5%/year, meaning the State's interest commitment as a percentage of GDP is falling even faster.
The State borrowed some money overseas between 1997 and 2005, as those markets had again opened to us and Treasury simply wanted to test SA's creditworthiness.
Households feel the pinch
The current high level of foreign exchange reserves and the healthy State finances now make it possible for Treasury to redeem some of the foreign debt over the next few years.
In sharp contrast to State finances, which just seem to improve each year, household debt is weakening substantially. Households now need 9% of their annual income just to cover the interest on their debts. In 2003, that figure was less than 7%.
While private households are feeling the pinch of the increase in short-term interest rates, the State is deriving benefit from the fall in long-term interest rates.
The State is struggling to create the necessary capacity to realise its dreams of infrastructure spending, but households are having problems showing the discipline necessary to refrain from spending money on all those bright and shiny objects now gracing dealers' windows.