State debt creeping up

2017-02-22 15:07 - Jaco Leuvennink

Cape Town – State debt has kept on eroding the government's fiscal space and now amounts to more than 50% of gross domestic product, the budget reveals.

Interest on debt will amount to R169 in the coming financial year – one of the biggest items in the budget. About R149bn (or 3.1% of GDP) will have to borrowed just to cover the budget deficit and balance the books. It will increase to R197.3bn, or 3.6% of GDP in 2019/20.

Government’s gross borrowing requirement though is expected to be R243.4bn in 2016/17 (R13.9bn more than projected in the 2016 Budget) and increasing to R284.4bn in 2019/20.

The Budget Review states that despite volatile market conditions, debt remains within strategic risk benchmarks.

Eskom, independent power producers and the Road Accident Fund (RAF) account for the majority of government’s contingent liabilities.

Aside from debt, government’s major obligations are guarantees to state-owned companies and independent power producers (IPPs), and provisions to multilateral institutions. The substantial underfunding of the RAF, according to its actuarial valuation, also constitutes an obligation.

Changes in government’s guarantee profile in 2016 were as follows:

 - In September, government granted South African Airways (SAA) an additional going-concern guarantee of R4.7bn, increasing its total guarantees to R19.1bn.

 - In October, government granted the Land Bank an additional R4.5bn guarantee to lengthen the maturity profile of its debt. This will bring its total guarantees to just over R11bn.

 - The R7bn guarantee to the Reserve Bank for the bailout of African Bank expired in February 2016 without being called on. It has been replaced with a R3bn guarantee.

As a result of these changes, guarantees to public institutions are expected to increase by R7.8bn, from R469.9bn in 2015/16 to R477.7bn in 2016/17. Over the same period, exposure (the amount that the state-owned companies have borrowed against their guarantee) is expected to rise by R52.5bn.

The main changes to guarantees were:

 - Eskom is expected to use R43.6 bn of its guarantee in 2016/17 and R22bn annually over the medium term.

 - SAA has used R3.5bn of a R4.7bn going-concern guarantee, with the remainder likely to be used in 2017/18.

 - The South African National Roads Agency Limited used R2.9bn of its guarantee in 2016/17, increasing exposure to R30.1bn. The full guarantee is expected to be used by 2018/19.

 - The South African Post Office increased its exposure by R2.6bn in 2016/17, utilising nearly all of its R4.4bn guarantee. Guarantees to some state-owned companies remain a major risk to the fiscus.

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