South Africa’s deteriorating finances scaring investors away

South Africa’s deteriorating financial situation is scaring investors away from the country, exacerbating the government’s fiscal crisis. 

FirstRand-owned Ashburton Investments said in its South Africa Fixed Income Quarterly Insights for the third quarter that it remains defensive on local government bonds due to several domestic factors. 

Ashburton is concerned about the shortfall in government revenue collections and increased spending, negatively impacting the country’s financial health. 

South Africa’s budget deficit has continued to widen as government expenditure grows at a faster rate than its revenue collection, threatening a fiscal crisis. 

The government has to issue more debt to finance the growing deficit, adding to its debt burden and servicing costs. 

It is estimated that the government will have to borrow R500 billion over the next year to finance the growing fiscal deficit and refinance maturing debt, or R2 billion per weekday on average. 

From the beginning of August, the National Treasury has increased the issuance of government debt by R2 billion to over R14 billion per week.

Another threat to the country’s balance sheet, which will compound the country’s already poor fiscal position, is the proposed implementation of the NHI. 

“Intentions around launching an NHI that will be an unpalatable burden on the fiscus is an issue that poses risks to the sovereign balance sheet,” Ashburton said. 

According to a report released by the Solidarity Research Institute, the National Treasury will need an additional R295.93 billion to fund the implementation of the NHI.

South Africa’s National Assembly passed the NHI Bill earlier this year, but there have been few details on how the insurance scheme will be funded.

Ashburton is also concerned about the government’s ability to raise debt as it is issuing larger amounts while demand for South African bonds is declining. 

Furthermore, local banks and institutions are already carrying a heavier burden on funding the government as foreign investors have been net sellers of local bonds in 2023.