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Pravin Gordhan, Minister of Finance. Photo: Matthew Jordaan.

South Africa will introduce two new fixed income and three inflation-linked bonds in 2012/13 to smooth the maturity structure of its debt, the National Treasury said on Wednesday.

In its 2012/13 budget, the Treasury said the fixed-income bonds would have l1-year and 36-year maturities while the inflation-linked bonds would mature in 13, 26 and 39 years respectively.

“Increased demand for inflation-linked bonds, together with higher-yielding long rates, suggests an expectation of higher inflation over the long term,” it said.

The government's net borrowing requirement was expected to reach 168.8 billion rand ($21.95 billion) from 152.7 billion rand in 2011/12, while state-owned entities would borrow an estimated 76.9 billion rand to fund infrastructure projects.

“After increasing in line with budget deficits, government's net debt stock is expected to peak at 38.5 per cent of GDP in 2014/15,” the Treasury said.

Over the next two years, domestic long term loan issuance would average 151.2 billion rand before decreasing to 142.3 billion rand in 2014/15.

Large primary deficits since 2009 have resulted in a considerable build-up of public debt. By 2014/15, government will have added more than 1 trillion rand to its debt stock since 2008.

Current weekly auction levels in domestic bonds would be broadly maintained in 2012/13 while the introduction of Islamic bonds was also under consideration, the Treasury added.

Because of prudent macroeconomic policies, and deep and liquid capital markets, South Africa has been able to finance its main borrowing requirements in the domestic market.

But Treasury said it intended to borrow $3 billion in global markets over the medium term to maintain benchmarks in major currencies and meet part of its foreign currency commitments.

To reduce near-term exposure to refinancing risk, the government would continue to use “switch auctions” to exchange maturing bonds before due date for longer-dated bonds, the Treasury said. It would also consider switches for foreign bonds, it added. - Reuters