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Cape Town - South Africa's net debt as a percentage of GDP has grown from 21.8% at the start of the financial crisis in 2008/09 to 40.8% in 2014/15, Finance Minister Nhlanhla Nene told an international debt management conference in Johannesburg.
“Revenue collection has underperformed due to weak economic growth, leading to increased debt accumulation to support the fiscal stance,” Nene said.
Nene contrasted the advanced economies which, he said, took extraordinary measures to ease monetary policy to counter the effects of the crisis by taking their interest rates to near zero.
“The impact of this on emerging economies was an unprecedented rise in inflows that led to an appreciation in local currencies,” he said.
Government borrowing has risen in the post-crisis years for many countries, according to Nene.
"However, there appears to be limits to the ability to stabilise the economy, when government debt is too high.
"This means fiscal policy becomes weaker at higher debt levels. It is therefore critical that governments maintain prudent debt levels and rebuild fiscal space," Nene cautioned.
Debt 'non-negotiables'
Nene placed the current national debt situation within a historical perspective saying that post-1994 SA laid a foundation for macroeconomic stability and an improvement in the country’s credit ratings.
"By the early 2000s, government had reduced its debt from 38% of GDP to 22% of GDP. So, by the time the crisis hit in 2008, the government had built enough fiscal space to be able to respond to the crisis in a counter cyclical manner".
Nene cited lessons for sound debt management in SA and described them as 'non-negotiables': prudent macroeconomic policies, fiscal and monetary discipline, building strong and liquid local currency bond markets, promoting policies that make a country an investment-friendly destination.
Global economic growth for 2015 has a mixed outlook, according to Nene. “The International Monetary Fund projects global GDP growth to increase only slightly to 3.5% in 2015, rising to 3.7% in 2016 from 3.4% in 2014.
“Emerging market growth is expected to remain low in 2015 and pick up modestly in 2016 as commodity prices are under pressure,” he said.
On May 12 ratings agency Standards & Poor’s maintained a stable outlook for South Africa, saying real GDP growth would be limited to 2.1% in 2015 owing to electricity supply shortages.
READ: S&P's affirms SA's credit rating, outlook stable
S&P’s further speculated that there will be a slight acceleration to an average of 2.7% per year over 2016-2018 “thanks to an increase in electricity generating capacity, domestic consumption, and rising net exports”.
“Tax increases, alongside the recent wage settlement for public sector workers, should help limit fiscal risks in 2015-2018, and we expect the treasury to stick to its pledged hard expenditure ceiling,” S&P’s said.
