Bailouts to Push South Africa’s Debt Ratio Above 70% of GDP

(Bloomberg) --

South Africa’s government debt will top 70% of gross domestic product in the next three years and may continue rising after that as bailouts for state-owned companies boost spending, according to the National Treasury.

The projected gross-loan ratio of 71.3% by 2023 compares with an estimate of 59.7% in the February budget, and will rise to 80.9% in 2028 unless steps are taken to reduce the budget deficit, the National Treasury said in its the medium-term budget policy statement published on Wednesday. The ratio was previously projected to rise to 60.2% in 2024, before decreasing in subsequent years.

“Government remains committed to fiscal sustainability, but there has been significant fiscal deterioration since the tabling of the 2019 budget,” the Treasury said. “Without intervention, the persistent gap between revenue and expenditure now puts government debt on an upward trajectory over the next 10 years.”

Tax-revenue shortfalls and rising debt-service costs will continue to strain government finances, in addition to support for power utility Eskom Holdings SOC Ltd. and other state-owned companies, the Treasury said. Debt-service costs will exceed spending on health and economic development by 2023.

More on the debt projections:

• Gross loan debt will climb above 3 trillion rand in the current fiscal year and rise to 4.5 trillion rand in 2022-23.
• The debt-to-GDP ratio is projected at 60.8% this fiscal year, compared with the February estimate of 56.2%. It is seen rising to 64.9% next year and 68.5% in 2022.
• The government’s borrowing requirement is estimated at 394.2 billion rand in the current fiscal year, compared with the February estimate of 335 billion rand. The borrowing requirement rises to 440.5 billion rand in the next fiscal year, 448 billion rand in fiscal 2022 and 518 billion rand in 2023.
• Bond issuance, including fixed-rate and inflation-linked debt, is projected at 284.1 billion rand this year, rising to 343 billion rand in fiscal 2021 and 353.9 billion rand in 2022.
• Weekly bond-auction amounts won’t be adjusted as current levels are sufficient to provide for the higher borrowing requirement.
• The government plans to raise the equivalent of about 146 billion rand in international markets over the next three fiscal years, following issuance of $5 billion this year. Foreign debt will rise to 451.4 billion rand, or 10% of total debt, in 2023.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Ana Monteiro, Mike Cohen

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