Budget 2023
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Gigaba preaches prudence as SA’s borrowing requirement rises

Pretoria - Government will have to borrow R191bn in 2018/19, despite adjusting its debt management strategy during the last year to fund a large revenue shortfall.

South Africa's gross borrowing requirement for 2017/18 increased by R25.1bn to a total of R246bn, Treasury’s latest budget review revealed on Wednesday.

But there was hope that austerity measures in recent months have been paying off, with South Africa’s medium-term borrowing requirement dropping substantially from the projections set out in last year’s mini budget.

Finance Minister Malusi Gugaba said on Wednesday that the budget moderated spending and raised the revenues required to contain the growth in national debt. He said last year's mini budget showed government debt is on an unsustainable path.

“Acting now to strengthen the fiscal position will improve the outlook for the economy and increase space for future investment growth,” he said. “We dare not borrow irresponsibly, leaving it to future generations to repay.”

Prudent approach

Over the past year, government had to maintain a prudent approach to debt management as it adjusted to an increase in the borrowing requirement and higher financing costs, Treasury said in the review.

“Investor confidence also improved following political developments in December 2017, leading to a stronger exchange rate and lower government funding costs.”

The gross borrowing requirement in 2017/18 was R246bn, consisting of R217.3bn for the budget deficit and R28.7bn for debt repayments.

National Treasury also said it has started to address rating agencies' concerns about low growth and policy uncertainty, to ensure continued investment flows into South Africa and funding at reasonable rates.

South Africa’s debt position

This year South Africa’s total borrowing requirement will be R224.2bn, funded through three main sources.

This includes short-term borrowing consisting of Treasury bills and loans from the Corporation for Public Deposits, long-term loans that include fixed-rate, inflation-linked and retail savings bonds, and foreign-currency loans.

“The use of multiple borrowing sources helps to diversify government’s debt portfolio,” Treasury stated.

It said the demand for government debt remains robust, despite two sovereign credit-rating downgrades during 2017.

Treasury expects the country’s gross borrowing requirement to peak at R301.6bn in 2019/20 due to high domestic and foreign debt recoveries. Although the recoveries remain relatively large over the medium term, Treasury said the main budget balance constitutes a much larger proportion of the borrowing requirement.

“The main budget is expected to approach a primary balance by 2020/21 and to move into surplus thereafter.”

Net loan debt

Net debt is expected to be R2.28trn in 2017/18, or 48.6 % of GDP, increasing to R3.03trn, or 52.2 % of GDP in 2020/21.

Treasury expects net debt to stabilise at 53.2 % in 2023/24.

It said debt-service costs have increased to an estimated R163.2bn in 2017/18, or 3.5 % of GDP, and are projected to increase to R213.9bn, or 3.7% of GDP, in 2020/21.

Gigaba said the reality is that the rising cost of servicing national debt leaves less resources available to invest in other services.

The debt-service costs were adjusted upwards due to South Africa’s higher borrowing requirement. But exchange rate appreciation lessened some of the pain by reducing the debt-service costs on foreign loans.

Treasury said it believes deep and liquid domestic capital markets will remain government’s main source of borrowing.

But it took an optimistic view on South Africa’s debt portfolio, believing it was well structured with an emphasis on longer dated loans.

Visit our Budget 2018 Special for all the news, views and analysis.

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