South Africa's Debt Levels, Bond Sales Jump as Taxes Disappoint

  • Nene seeks to stabilize growth of debt as percentage of GDP
  • Eurobond sales set to increase to $1.5 billion from $1 billion

South Africa’s debt levels and bond sales are set to climb as the government struggles to meet its revenue-collection targets.

Gross government debt will probably increase to 49 percent of gross domestic product in the year through March 2016, higher than the 47.3 percent forecast in February, the National Treasury said in its mid-term budget released in Cape Town on Wednesday. It projects the ratio will stabilize at below 50 percent of GDP over the next three fiscal years.

“The central fiscal objective over the medium-term is to stabilize the growth of debt as a share of GDP,” the Treasury said. “Rising debt-service payments are already crowding out spending on social and economic priorities.”

The government is set to borrow 519.5 billion rand ($39 billion) in the three years through March 2018, or 47 billion rand more than was targeted in February. The Treasury cut projected tax revenue for the period by 35 billion rand as power shortages and an anemic global economic expansion constrain growth.

Domestic bond sales will increase to 175 billion rand in the year through March 2016 and 180.5 billion rand next year, up from a February projection of 172.5 billion rand for each of the two years.

The government will raise $1.5 billion from international markets in each of the next three fiscal years, after raising $1 billion this year. The projections imply an exchange rate of about 12.6 per dollar next year.

Net debt is seen increasing to 45.4 percent of GDP in 2018, from 43.5 percent this year, the Treasury said.

South Africa’s debt is rated at one level above junk by Standard & Poor’s. Moody’s Investors Service and Fitch Ratings rate the nation one level higher. Fitch has a negative outlook on the rating and plans a review in December.

Further rating downgrades “could induce a sudden outflow of foreign capital and sharply higher interest rates,” the Treasury said. “Given South Africa’s reliance on foreign lending to finance investment, such a development would compromise the country’s ability to sustain growth and social progress.”

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