South Africa borrows R14 billion a week

With a decline in tax collections and dwindling investor appetite for long-term South African government debt, the National Treasury has increased the issuance of government debt by R2 billion to over R14 billion per week. 

Business Day reported that Treasury director-general Duncan Pieterse said the issuance of government debt had been increased from the beginning of August. 

“The underperformance in revenue collections this year has meant we have to think very differently now about what a credible fiscal framework looks like,” Pieterse said.  

“One of the tasks we have is placing the trade-offs very starkly and clearly at the centre of the budget process. One of our roles is to advise the minister and cabinet on the trade-offs, and we need to put it in very concrete terms.” 

South Africa will need to borrow over R500 billion over the next year, or over R2 billion per weekday on average, to fund its current fiscal deficit and refinance maturing debt. 

Nedbank CEO Mike Brown flagged this concerning trend after the company released its half-year results last month. 

Brown said most of South Africa’s economic troubles are internal “own goals”, such as load-shedding, logistical inefficiencies, and the country’s foreign policy affecting relations with the country’s largest trading partners. 

Nedbank anticipates meagre growth for South Africa this year of only 0.3%, rising to 1% in 2024. The bank estimates that load-shedding alone costs the economy between R900 to R1 billion a day. 

Low to no economic growth will likely result in increased unemployment and add to the cost of the government’s social support schemes. 

This will put tremendous pressure on the country’s finances and potentially widen the existing fiscal deficit, which will have to be funded by issuing new government debt. 

Brown said this increases the risk premium attached to investing in South African assets as the debt burden is unsustainable, raising questions over whether the government can meet its obligations. 

Apart from a growing debt burden, the risk premium has been driven up by load-shedding, logistics constraints, crime and corruption, and questions over the country’s foreign policy.

The rising risk premium has resulted in the demand for government bonds from foreign investors falling, with net outflows recorded for the year so far. 

“When you’ve got more sellers than buyers, the price goes up, and when the price of bonds goes up, the cost of capital goes up,” Brown said.

“That is negative for investment because investments have to meet a higher hurdle rate. That is a huge concern.”