Mboweni tries to stabilise debt as JSE crashes

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Tito Mboweni delivers the medium term budget in Parliament. Picture: Gallo Images
Tito Mboweni delivers the medium term budget in Parliament. Picture: Gallo Images

Finance Minister Tito Mboweni steered clear of increasing borrowing in his medium-term budget, instead announcing spending cuts to offset falling tax revenue.

The National Treasury’s financing plan unveiled Wednesday was little changed from the special adjustments budget announced in June to take account of the devastation wrought by the coronavirus.

The government will rely on borrowing from multilateral institutions and draw on sterilisation deposits it holds with the South African Reserve Bank to help finance a budget deficit that’s seen at 15.7% of gross domestic product this year.

Meanwhile, South Africa’s main stock index extended declines, falling the most in more than five months after Mboweni’s budget update and as negative sentiment from rising coronavirus infections and tougher lockdowns engulfed global equity markets.

Johannesburg’s benchmark index sank as much as 3.2% to a four-month low, with just 11 out of 141 stocks managing gains as of 4:34 p.m. Major diversified miners Anglo American Plc, down 4.6%, and BHP Group Plc, down 2.6%, were the heaviest drags on the market, reflecting investor concerns about the outlook for the global economy.

“Equity markets and the rand had moved stronger over the past few weeks, but it looks like the realisation that both the domestic and external environments remain quite challenging have resulted in most of those gains being given back today,” said Peter Takaendesa, head of equities at Mergence Investment Managers in Cape Town.

The rand dropped as much as 1.8% against the dollar, also the most since September 21, as emerging-market currencies weakened.

“With a stronger dollar and negative sentiment around the South African budget, the rand was due to be on the backfoot,” said Matete Thulare, a Johannesburg-based analyst at Rand Merchant Bank.

The weaker rand dragged the index of bank stocks down 3.7%, the biggest intraday decline since September 2.

The mining index fell 3.5%, with Anglo and BHP joined by Sibanye Stillwater Ltd. (-6.9%), Impala Platinum Holdings Ltd. (-6.4%) and Anglo American Platinum Ltd. -6.6%

Here are the main points from the financing plan:

The gross borrowing requirement – the sum of the main budget deficit and maturing loans – is expected to reach R774.7 billion this fiscal year. That’s marginally down from R776.9 billion projected in June, but up from the R415.8 billion that was raised in the previous fiscal year. It’s seen declining to R593.2. billion by 2023-24.

The Treasury expects to raise a net R143 billion in domestic short-term loans in the fiscal year through March, and an average of R66.7 billion annually over the next three years.

It intends raising R462.5 billion in domestic long-term loans this year, and an annual average of R469.9 billion over the following three years.

Foreign loans totaling R121.8 billion are set to be raised this year, R49.4 billion in 2021-22 and R49.3 billion in the year after that.

Gross loan debt is expected to rise to R5.54 trillion, or 92.9% of gross domestic product, in 2023-24, from R3.97 trillion, or 81.8%, this fiscal year.

Debt-service costs are projected to increase to R353.1 billion in 2023-24, from R233 billion. – Bloomberg


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