Economists sound alarm on spiralling debt

SA’s public sector debt has exceeded levels last seen at the advent of democracy and indicates an economy on its knees.

Debt and debt-service costs are projected to rise drastically over the next three to four years. On Wednesday, the Treasury forecast an increase in the debtto-GDP ratio to 60% by the 2020-21 fiscal year. In 1993-94, the ratio was 48.3%.

Standard Bank chief economist Goolam Ballim said the medium-term budget policy statement revealed that SA’s political establishment had no clothes. “The finance minister was impressively candid about SA’s dire situation. This was, however, matched by his inability to show a path to resolution.”

Debt-service costs will remain the fastest-growing category of public-sector expenditure over the next three years, crowding out social and economic spending.

Over the medium term, the gross borrowing requirement — the sum of budget deficits and funds required to refinance debt that matures during a year — will be nearly R1-trillion, from R248.3bn in 2017-18.

Gross loan debt is expected to increase from R2.5-trillion, or 54.2% of GDP, in the current fiscal year to R3.4-trillion, or 59.7% of GDP, in 2020-21.

“SA’s economy is paralysed singularly because of the political dysfunction,” Ballim said.

“Until we glean who the next ANC leadership is going to be, we are going to remain paralysed. Private-sector capital and investment is going to remain in recessionary mode.”

Ballim said the budget had provided “no practical, plausible and implementable measures” to calm the markets. “If anything, the minister laid bare the increased propensity for credit ratings downgrades or perhaps he subtly ceded the resolution to the politicians and particularly the ANC.”

John Orford, portfolio manager at Old Mutual Investment Group’s MacroSolutions boutique, said bonds had weakened in the run-up to the budget.

Bond yields rose 35 basis points over the past month.

“That shows there was some nervousness in the market about what to expect in the budget,” Orford said.

“What we now see is a projection of debt to GDP rising sharply to 54% from the current level in 2017-18 but continuing to rise through the next four years and ending up at 61% of GDP,” Orford said.

While there might be certainty following the ANC elective conference “on face value, it’s a very negative budget for the bond market”, he said.

“We see that in the reaction in bonds. Bond yields are up. The rand touched R14/$ and came back a little.”

Orford said it was a poor budget statement. “It doesn’t credibly show an attempt to consolidate government’s debt at sustainable levels. It’s possible the budget in February may deliver something.”

UNTIL WE GLEAN WHO THE NEXT ANC LEADERSHIP IS, WE ARE GOING TO REMAIN PARALYSED