The global Debt Monitor issued by the Institute of International Finance (IIF) yesterday showed that South Africa’s debt to gross domestic product (GDP) was fast approaching 60 percent after reaching 59.3 percent in the first quarter.
The Washington-based IIF said South Africa saw the biggest debtto-GDP increase in the sub-Saharan Africa (SSA) region during the quarter, from 54.7 percent a year earlier as the government struggled to rein in the country’s debt. “An increase in government debt pushed South Africa to the largest change in emerging market debtto-GDP year-over-year in SSA, the fifth-largest difference among the emerging markets assessed,” the IIF said.
The organisation said emerging market debt hit a record high of $69 trillion (R960trln) in the quarter, and the persistent economy-wide increase in borrowing continued to feed into higher contingent liabilities for many sovereigns. It said the rise in overall debt-toGDP ratios since the first quarter of last year had been most significant in Chile, Korea, Brazil, South Africa, Pakistan and China. North West University Business School economist Professor Raymond Parsons said existing and expected levels of government spending meant that the medium term budget policy statement (MTBPS) in October could project a debt-to-GDP ratio in excess of already extended commitments.
“The IIF report confirms Finance Minister Tito Mboweni’s message to Parliament last week that red lights are flashing for SA’s debt-to-GDP ratio in the forthcoming MTBPS,” Parsons said. “The original Budget projections in February this year were predicated on an expected 1.5 percent growth in 2019, which is clearly no longer realistic, given the poor economic growth performance in the first half of 2019.” Last week, Mboweni warned that debt service costs had increased and that persistently poor economic growth further exposed the government to the risk of repricing its debt.
The MTBPS is largely expected to reflect continued fiscal slippage as revenue continued to underperform. This, coupled with additional spending pressures, specifically related to embattled power utility Eskom, was expected to see a considerable worsening in fiscal ratios. In May, Moody’s issued its strongest warning yet that the country was fast slipping into junk status as continuing structural weaknesses and rising debt overran South Africa’s ability to service its debt obligations. Moody’s is the only major rating agency that still has the country’s sovereign debt above junk.
The agency is expected to release its next review in November. Maarten Ackerman, the chief economist at Citadel, said the fact that the government’s debt-to-GDP ratio was steadily approaching 60 percent was a negative for the economy. Ackerman said the increase was worrying. “First, as an emerging market, a high government debt level is a concerning indication of the poor health of the economy,” Ackerman said.