Public debt had risen to R1.59 trillion and was expected to reach more than R2 trillion by the end of the current medium-term expenditure framework, Finance Minister Nhlanhla Nene said yesterday.
Prior to the global crisis in 2009, the stock of public debt stood at R525 billion, he said.
Chris Hart, an economist at Investment Solutions, said the reason for the rise was that government expenditure had continued to grow while the tax base had not.
“Debt has been growing at a faster rate than the economy. This led to the credit downgrade. We did this to ourselves and there are no external factors.”
Delivering his budget vote for the Treasury, Nene said that economic weakness and the rising public debt burden reinforced the importance of ensuring the sustainability of fiscal policy over the period ahead.
“The changing global economic climate is providing new challenges to the fiscal outlook. When the economy was faced with a recession in 2009, prudent fiscal management in preceding years meant we were better able to use our fiscal space to respond to the crisis.
“Low international interest rates helped the government to finance its borrowing requirement, inflation was moderate, and high commodity prices buoyed our tax revenues.”
He said that the country had entered a new environment. Rising global interest rates had increased the cost of servicing South Africa’s debt, commodity prices had declined, and the depreciation of the rand had pushed up inflation. The fiscal space built in the 2000s had diminished.
Nene said the period ahead would not be easy. To ensure the fiscus remained sustainable, the three principles that were the backbone of the country’s fiscal stance remained in place: countercyclicality, debt sustainability, and intergenerational fairness.
“Over the next three years, government will stabilise the growth of public debt, and then begin to rebuild the fiscal space. This will be achieved by remaining within the expenditure limits we’ve set in the medium-term framework. This ceiling means that expenditure will continue to grow and the real value of social spending will be maintained. But the fiscal limits will be stronger, and the need to ensure value for money and effective allocation of resources even more paramount.”
He said that despite the contained growth in expenditure, the government’s budget deficit remained elevated. In aggregate, the final outcome of tax revenue for the 2013/14 fiscal year was R899.8bn, in line with the target that was set in the Budget. However, over the past few years, weaker economic growth meant lower-than-anticipated revenue.
“The situation is expected to improve over the period ahead, with the budget deficit projected to narrow from 4 percent of gross domestic product in 2014/15 to 2.8 percent in 2016/17. If growth outcomes continue to disappoint, achieving this objective will be much more difficult. But the government remains committed to the sustainability of the fiscus, and if necessary, further measures will be taken to achieve our objectives.”
He said the country’s credit rating was under pressure due to a combination of domestic and global challenges.
“There is very little we can do about the global environment, but we can do a lot about our domestic challenges. So let’s demonstrate a greater sense of urgency in the implementation of our policies, acting with speed to remove constraints to economic growth and therefore job creation.
“We will act decisively to avoid further downgrades, as these will result in a significantly higher cost of borrowing, both for government and state-owned companies, and the cost of financing infrastructure programmes will increase.”