Local borrowing to cut rand risk

THE GOVERNMENT plans to finance its borrowing requirement mainly in the “deep and liquid” domestic market. This eliminates the risk that a weaker rand could send the value of outstanding debt to unexpectedly high levels.

However, it does intend to borrow about $3 billion (R23bn) in global markets over the next three years “to maintain benchmarks in major currencies and to meet part of its foreign currency commitments”.

It raised $750 million with a 30-year bond issue in March last year and $1.5bn with a 12-year issue in January.

The borrowing requirement of the government is expected to reach R168.7bn in the 2012/13 fiscal year, from R152.7bn in the current fiscal year, the Budget Review says. State-owned entities will borrow about R77bn to fund capital expenditure programmes. And development finance institutions will borrow a projected R13.9bn to meet commitments.

The Budget Review says the government’s net debt stock should peak at 38.5 percent of gross domestic product (GDP) in 2014/15. Higher borrowing in recent years has boosted the cost of servicing debt from 2.4 percent of GDP in 2010/11 to an estimated 2.6 percent this year, rising to 2.7 percent next year and 2.8 percent in 2013/14.

The pressure will subside in 2014/15 as debt service costs fall back to 2.7 percent of GDP. – Ethel Hazelhurst