The problem of SA's mounting debt

Johannesburg - Finance Minister Malusi Gigaba painted a picture of an economy struggling under the weight of lackluster growth and a rising debt burden when he delivered his budget update in Cape Town on Wednesday.

The following charts illustrate the deterioration in the country’s finances and the challenges Gigaba faces:

With growth and tax revenue falling short of target, the government has increasingly turned to the bond market to fill a hole in the budget.

Gross government debt is projected to jump to about 60% of GDP by 2021.

Higher local and foreign-debt issuance is likely to weigh on South African bonds, which already have yields among the highest in emerging markets.

Interest payments will amount to 163.3bn in the current financial year and are set to grow by an average 11% annually for the next three years. Borrowing costs are projected to rise to about 15% of revenue by 2021, crowding out other spending.

The budget deficit is projected to jump to 4.3% of gross domestic product in the current fiscal year, compared to the 3.1% predicted in the February budget, and be maintained at 3.9% for the next three years. The Treasury had previously pledged to narrow the gap to 2.6% by 2020.

A R50.8bn revenue shortfall is expected this fiscal year, rising to as much as R89bn in 2020, despite income-tax increases in two of the past three fiscal years.

While the Treasury needs to raise more money, it’s concerned additional levies may be a further brake on growth and encounter resistance from already-overburdened taxpayers.

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