Government debt up as growth falters in ailing economy

Pretoria – Government debt continues to grow, despite efforts to cut expenditure and remain on the path of fiscal consolidation, data revealed.

According to the South African Reserve Bank’s September 2017 quarterly bulletin, released on Thursday, government debt reported in June 2017 was 51.6% of GDP, up from 47.8% recorded the previous year.

Government finances had taken strain in the first quarter of the fiscal year 2017/18, according to the report. Government expenditure was kept below budget projections, but revenue increased at a much slower pace, mainly due to weak economic activity.

“This resulted in a higher cash book deficit compared with the same period a year earlier,” the report read. The cash book deficit was R37bn in the first quarter of the year - R7.3bn more than the same period last year.

The revenue shortfall is a result of lower-than projected collections of tax across all categories, but particularly tax related to international trade transactions which declined by 3%, the report explained.

Speaking at the opening of the Tax Indaba on Monday, Finance Minister Malusi Gigaba explained that fiscal consolidation had been adhered to, but mainly because expenditure had been dropped on a gradual basis and not due to rising revenue. “Government is not in a position it would like to be,” he said.

The South African Revenue Service set a collection target of R1.265trn, but missed the first-quarter target by R13.1bn, Fin24 previously reported.

Government expenditure for the first quarter of the fiscal year increased by 5.9% to R308.3bn. This is 26.9% of GDP, lower than the 27.1% reported for the same period last year. Expenditure is projected to increase by 8.1% for the full fiscal year to R1.41trn.

Revenue for the quarter amounted to R271bn, having only increased 3.8% or R9.9bn from the same period last year. The total revenue for the year is projected to increase by 9.8% to R1.24trn.

Government’s domestic debt increased by R83.3bn in the first quarter to R2.1trn as at June 30. It consists of fixed income, floating-rate and zero-coupon bonds, which include retail bonds and other debt, the report highlighted. All these instruments amount to R1.344bn, accounting for 63.9% of total domestic debt.

During the period, domestic short-term loans, including Treasury bills, increased by R21.3bn, pushing the total value to R298bn by June 30. Treasury bills and bonds account for 97.5% of total domestic debt, according to the report. Domestic debt is projected to be 46.7% of GDP or R2.22trn for the fiscal year.

Foreign currency denominated debt decreased by R6.8bn, lowering total outstanding debt to R206bn. This was partly helped by the appreciation of the rand against other currencies, and the redemption of loans and a bond, the report indicated. Foreign currency debt is projected to be 5.5% of GDP or R262bn for the year.

The total gross loan debt of national government, both domestic and foreign, lifted by R76.6bn to R2.3trn. The total gross loan debt amounted to R2.23trn at the end of the fiscal 2016/17 year, and R2.02trn at the end of the 2015/16 fiscal year.

Speaking at Moody’s Sub-Saharan Africa Summit on Wednesday, Zuzana Brixiova, vice-president and senior analyst of the sovereign risk group, explained that debt of around 50% of GDP is not unusual for emerging market economies.

Brixiova noted that South Africa is among the best in managing debt capacity. “The structure of debt is very favourable,” she said.

Although there are positive features, Moody’s is concerned that debt level has been steadily increasing over a number of years, which brings the sustainability of the situation into question. 

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