Financial sector increases its government debt to 22%

(John McCann/M&G)

This has widened the budget deficit from 5.7% in 2019-20 to an estimated 14% in the current financial year. 

In the treasury’s briefing, the Reserve Bank governor Lesetja Kganyago said that the widening debt deficit means that the government was borrowing the entire savings generated in the economy in one year, raising the capital cost. 

He said the rise in government debt crowded out private investment, which is the micro price that this economy has been paying. 

“So do not cry and say that the economy is not growing because the government consumed the savings that were available,” he said. As it stands, the economy is projected to grow by 3.3 % this year, but it will moderate to 1.6% in 2023. 

The gross borrowing requirement increased by R237.6-billion to  R670.3-billion in 2020-21. However, the borrowing requirement is expected to decline to R541.7-billion in 2023-24 as the government reduces spending. Gross loan debt is expected to increase to R5.23-trillion by 2023-24 and stabilise at 88.9% of GDP in 2025 and 2026.  The treasury predicts that the budget deficit will narrow from 7.5% of GDP in 2020-21 to 0.8% in 2023-24. 

Herman van Papendorp, head of investment research and asset allocation at Momentum Investments, said that South African bonds were attractive to all South Africans because of their high interest.  

But he said there was no need to worry about the government defaulting. He added that usually, when the debt of a country increases, the risk of holding bonds rises as well, but Mboweni’s budget was working to bring back the fiscal numbers.

Tshegofatso Mathe is an Adamela Trust business reporter at the M&G

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