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Cape Town - South Africa's weak economic growth, the public sector wage bill and financial support for state-owned companies beyond what is currently budgeted for, are the three main risks to the fiscal outlook, the National Treasury said.
Increased debt levels in a low-growth environment would only add to debt-service costs and raise the risk of sovereign credit rating downgrades to sub-investment grade, the Treasury said in a document made available to the media on Tuesday.
"Accumulation of debt in the context of a low-growth environment is unsustainable," the Treasury said, noting that this would further raise debt-service costs, which were already the fastest growing item of expenditure.
"It also increases the risk of sovereign credit rating downgrades to sub-investment grade," it added.
In August, Finance Minister Nhlanhla Nene said the government was concerned that an economic downturn would make it harder to raise revenue and that it would have to look at spending curbs.
SA expects a budget deficit of 3.9% of gross domestic product for the 2015/2016 financial year, but is keen to limit borrowing, partly to appease ratings agencies which have downgraded emerging market peers like Brazil.
Loan guarantees to state firms at R469.4bn
Meanwhile, South Africa's loan guarantees to state-owned companies currently stand at R469.4bn and the firms have utilised R225.9bn of the facility, Treasury director general Lungisa Fuzile said on Tuesday.
The government has vowed it would raise funding for cash-strapped state firms such as power utility Eskom in a manner that has no effect on the national budget deficit.
