Cape Town – Finance Minister, Enoch Godongwana, is expected to address concerns regarding South Africa’s growing debt in the Medium-Term Budget Policy Statement (MTBPS).
The country’s debt stands at around R5 trillion, with a debt to GDP ratio of 70%, making the National Treasury uneasy.
A significant portion of government revenue, about R18 for every R100, is used to service the interest on this debt.
Over the past decade, government debt has more than quadrupled.
According to EWN, Chief economist Hugo Pienaar believes South Africa is facing higher interest rates due to concerns about fiscal sustainability, and the government may need to borrow more money while implementing unpopular budget cuts to address the situation.
“They are pushing up the long-term interest rates because markets are concerned about our fiscal sustainability. So, we are having to compensate these investors more to entice them to buy our government bonds,” the report quoted Pienaar as saying.
[VIEWER QUESTION] As Enoch Godongwana delivers his Medium-Term Budget Speech, he warns government coffers are running dry and expenditure must be cut. If you were the Finance Minister, what would you cut? Have your say on our social media platforms. #DStv403 #SouthAfricanMorning pic.twitter.com/KtjLKHY8hF
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Despite challenges, he does not see an imminent fiscal crisis.
“We can’t fund the entire gap by simply cutting expenditure. That’s going to have too detrimental a short-term impact.”
Meanwhile, according to The Citizen, Godongwana has been advised to adopt a broader perspective when presenting his Mid-term Budget Policy Statement (MTBPS) on Wednesday, rather than becoming overly preoccupied with the recent fiscal year’s decline in comparison to earlier expectations.
South Africa has experienced a rapid increase in debt to GDP ratio since 2018 due to high interest costs, slow economic growth, and insufficient tax revenue.
“South Africa deteriorated the fastest among major emerging markets in terms of debt to gross domestic product (GDP) since 2018, primarily due to growth in the country’s interest bill or elevated cost of funding versus the slow pace of growth in the economy, tax revenue and the savings pool (interest on debt versus growth of national income),” the report quoted Thalia Petousis, portfolio manager at Allan Gray as saying.
She said that the only way to prevent severe fiscal deterioration with a debt cost of 11% to 13% is to maintain a continual primary surplus of 1.5% to 3% of GDP by saving money to cover annual interest payments.
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Compiled by Betha Madhomu
