SA needs R11m per day

COUNTING THE COST: POOR MANAGEMENT OF THE FISCUS ADDING UP

Servicing the debt of one year’s worth of borrowing requires R11 million more from taxpayers a day.

We’re now beginning to see the true cost of the poor, declining state of the public purse as SA looks for an additional R11 million per day to service both the larger amount the nation borrows through its weekly bond auctions and the higher yield being incurred on its debt.

On Monday, National Treasury said government would begin increasing the magnitude of SA’s weekly bond auction in response to the “revised revenue shortfall projections in the medium-term budget policy statement.

“The fixed-rate bond auction amount will increase by R650 million from R2 650 million to R3 300 Yield on ten-year government bond Cost of servicing the debt per annum Additional cost per day

million.

The inflation-linked bond auction will increase by R100 million, from R800 to R900 million.”

The changes will be effective from the auctions beginning in a week’s time.

In one fell swoop, government will increase its weekly borrowing requirement by R750 million a week, meaning that when Finance Minister Malusi Gigaba stands up to deliver the annual budget speech in late February, the government would have added an extra R11 billion to the debt of the nation.

Even worse than this, though, is the devastation wrought by borrowing at ever-higher rates. With the 10-year bond yield currently trading at 9.27% (R186), it has increased by 44 basis points since Gigaba delivered the medium-term budget policy statement. What does this mean? For starters, over an assumed 48-week bond cycle auction, SA will be borrowing an additional R36 billion a year. Total annual borrowing will rise from R165 billion a year to over R200 billion a

year (see table above).

In addition, and due to the higher cost of borrowing, servicing the debt will cost more.

After the first year of the cycle, the cost of servicing one-year’s worth of debt will increase from R14.6 billion to R18.6 billion – up R4 billion a year! Put in another way, the R4 billion could be spent on 15 Nkandlas (at R265 million a pop).

And it means the taxpayer will have to find an additional R11 million a day just to service the debt of one year’s worth of borrowing.