Investors don’t trust Godongwana’s 2024 Budget promises

Enoch Godongwana

While investors were initially optimistic about the 2024 budget, this optimism soon faded, reflected in South Africa’s bond yields.

This is according to Investec chief economist Annabel Bishop, who said the 2024 Budget showed some comparative improvement.

This is because gross debt peaked at 75.3% of GDP versus the 2023 November Medium-Term Budget Policy Statement (MTBPS) projections of 77.7%.

However, this is still higher than the 73.6% projected in the 2023 budget.

Therefore, after initially seeing some mild improvement immediately after the Budget on 21 February, this was reversed by the end of last week.

The yield on South Africa’s benchmark (10-year) government bond eased by 12 basis points to 11.27% from 11.39% previously.

South Africa’s rise in debt means that year on year, there has still been fiscal slippage, requiring some increased issuance in bonds, with the rise in supply a negative for bond yields.

Bishop explained that this is why the 2024 Budget has not “instilled meaningful confidence in investors of a turnaround in state finances”.

While gross debt is projected at 67.1% by 2031/32, this is still well above the 60% seen as the maximum sustainable debt ratio for an emerging market economy, with investors concerned over the high rate of expenditure in South Africa.

The country also continues to exceed the maximum sustainable fiscal deficit ratio for an emerging market economy of 3.0% of GDP, and the yield on South Africa’s benchmark government bond is back where it was before the 2024 Budget. 

Investec chief economist, Annabel Bishop

“This does not mean the 2024 Budget was not better than expected, as it was anticipated to show similar fiscal ratios to those of the 2023 MTBPS, but rather that the improvement was mild overall, with state finances not yet projected to achieve fiscal consolidation,” she said.

The modest improvement in the gross loan debt and fiscal deficit projections was because the government dipped into the Reserve Bank’s gold and forex reserves account.

Finance Minister Enoch Godongwana announced during the Budget Speech that the National Treasury will restructure reserves held at the Reserve Bank to free up R150 billion over three years.

The account, known as the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), showed paper profits of R507.3 billion as of January. 

Bishop said the best outcome would have been strong economic growth of at least 5%, which lifts revenues naturally and eventually eliminates the budget deficit, resulting in a drawdown from the GFECRA not being needed. 

“Investors overall feel that, instead, expenditure should be contained in a low growth environment,” Bishop said. 

“The GFECRA funds transfer risks being eaten up by higher expenditure, with bond markets preferring to rather see lower expenditure, and so debt issuance cut back.”

She explained that South Africa’s rising benchmark bond yield over the years indicates the falling value of the country’s bonds, with South Africa’s ten-year yield much higher, at above 11.00%, than that of most emerging market bonds.

In 2021, the yield on South Africa’s benchmark government bond averaged 9.40%, and in 2019, it was 8.94%.

In 2023, this has fallen to 7.35%, as South Africa’s long-term borrowing costs rose and the state extended its gross loan borrowings. 

The deterioration in South Africa’s government bond yields – i.e., a near doubling in borrowing costs since the 2000s – has pushed up long-term borrowing costs across the country, as these are benchmarked off state borrowing costs – a negative, knock-on effect.   


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