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Pretoria - Government debt is set to soar as a percentage of gross domestic product (GDP) over the next few years despite a lower budget deficit, as debts incurred in the past accumulate to make figures look weak. However, SA is still better placed than other countries.
Debt-to-GDP is expected to stabilise at 44% in 2015/16 - just a little less than the 48% prevailing when government introduced the Growth, Employment and Redistribution (Gear) strategy in 1995/96. Gear was introduced mainly to cut government debt and spending.
Finance Minister Pravin Gordhan said: "Unlike many countries that entered the crisis with already high levels of debt, we do not have to cut spending or raise tax rates in the short term at the expense of social development and economic growth.
"Our public debt is expected to rise from 23% of GDP in 2008/09 to about 40% in 2013, and will only stabilise in 2015.
Higher government borrowing is only a temporary solution to our economic challenges. As the world recovers from the recession, those countries with low levels of debt will be better placed to take advantage of growth opportunities. Those burdened with high debt levels will find it more difficult to invest and trade due to a substantial tax burden, high interest rates and perceived financial risks."
The European Union sets a limit for government debt of 60% as a percentage of GDP for member countries. Greece's debt is at a whopping 121% of GDP, while Portugal's is at 85% of GDP and that of the US at 86%, rising to 100% in 2012.
Comparisons are not strictly correct, as SA doesn't include its whole public sector in its measure of national debt as a percentage of GDP.
The Budget Review shows government plans to borrow R137.7bn in new loans on the long-term capital market in the coming fiscal year - up from R114bn in 2009/10.
This should easily be absorbed by the domestic capital market. Added to that is R11.5bn in foreign loans, which SA should easily be able to raise, because this Budget will have credibility in the markets.
However, state-owned entities and development finance institutions are budgeted to raise a massive R50.4bn on foreign markets.
They will raise R64.2bn in long-term loans on the capital market - less than in the 2009/10 fiscal year.
- Fin24.com