Minister of Finance Tito Mboweni delivers his Medium Term Budget Policy Statement in the National Assembly yesterday.
 Phando Jikelo African News Agency (ANA)
JOHANNESBURG - Finance Minister Tito Mboweni yesterday squeezed the country’s already tight fiscal space even further, warning that the cost of servicing had ballooned much more than initially anticipated.

Mboweni said estimates from the National Treasury showed that the cost of financing the government’s debt would now exceed the budget by R7.9billion in the 2020/2021 financial year.

He said the cost of repaying the debt would surpass the 2018 budget by R1bn and shoot up to R4.9bn in the 2019/20 period.

Mboweni said the rise reflected a larger budget deficit, currency depreciation and higher interest rates.

“We must choose to reduce the structural deficit, especially the consistently high growth in the real public service wage bill.”

Mboweni’s maiden Medium Term Budget Policy Statement (MTBPS) was meant to address concerns from investors and international ratings agencies who have expressed concerns over the country’s current rising debt projections.

However, Mboweni said gross debt would only stabilise to 59.6percent of the growth domestic product (GDP) in 2024/25 against the previously projected 56.2percent in February.

He said the country could no longer afford to live beyond its means as this would push the debt-to-GDP ratio even wider.

“We are trying to make the best of a very difficult situation,” he said.

“The conversation that has to take place with the rating agencies has to be an honest one.”

Mboweni said the 15.1percent of main budget revenue would now be used to service debt in 2021/22 compared with 13.9percent in 2018/19.

He said the government had to reduce its debt to stay afloat.

“We must choose a path that stabilises and reduces the national debt,” he said. “We cannot continue to borrow at this rate.”

He said this year’s budget deficit would widen to 4.3percent of the GDP, compared with the 2018 budget estimate of 3.8percent, adding that the shortfall was mainly attributable to declining revenue collection during the period.

PricewaterhouseCoopers economist Lullu Krugel said Mboweni’s debt picture would probaly leave rating agencies less enthusiastic about the MTBPS.

“Funding the fiscal deficit will require some prudent debt management.

“However, the outlook is far from favourable,” Krugel said.

“The majority of borrowing over the medium term will come from the issuance of bonds in the local capital market.”.

The National Treasury said the budget deficit was also projected to expand to 4.4percent of GDP in the 2019/2020 period.

It said the weaker rand also contributed to the ballooning costs to finance its debt as it accounted for nearly 70percent of the R47.6bn upward revision to gross loan debt in the current year.

Debt-service costs came ahead of education as the fastest-growing area of expenditure.

Old Mutual Investment economist Johann Els said the weaker numbers inherent in this budget lifted the probability of a Moody’s ratings downgrade or an outlook change.

“While the budget surprised on the negative side in terms of the numbers, there are a number of positives contained within the minister’s comments which give us reason for hope in the future,” Els said.

The marked revenue decline and the economy entering its first recession since 2009 in the second quarter of the year have resulted in slippage in fiscal projections.

The Treasury said risks to the fiscus remained elevated.

They included weak economic growth, uncertainty in the revenue outlook and the poor financial position of major state-owned companies.

Raymond Parsons, a professor at the North West University School of Economics, said: “The projections for future tax revenues, government spending and debt ratios therefore show a continued vulnerable fiscal situation in the period ahead.”

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