These graphs show South Africa’s debt levels since the ANC took control of a nearly bankrupt state

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South Africa faces mounting debt as the devastation wrought by the coronavirus pandemic compounds deterioration in public finances caused by overspending, mismanagement and alleged corruption during the former’s nine-year rule. President Jacob Zuma.

After cutting borrowing during years of strong economic growth from the late 1990s, the government posted its first post-apartheid budget surplus in 2007.

However, Finance Minister Tito Mboweni’s medium-term budget will show on Wednesday that debt levels are much higher than in 1994, when the ruling African National Congress took control of a nearly bankrupt state.

While the rand is near its best level since March and bond yields have recovered from a boom at the start of a virus lockdown, the generic 10-year yield remains above 9%, suggesting that a risk premium is always integrated into the country’s debt.

These charts that show how South Africa has failed to contain its liabilities since the shock of the global financial crisis:

Even before the virus, increased spending to increase government staff and bail out state-owned companies such as Eskom Holdings SOC Ltd. conspired with below-target revenues and slow economic growth to increase debt. As a percentage of gross domestic product, it will peak in 2024 under the Treasury’s best-case scenario.

Provided that the government takes active measures to stabilize the trajectory and revive the economy.

“South Africa’s debt position is going to be unsustainable over the next five years because fiscal consolidation measures are unachievable,” said Mpho Molopyane, an economist at the Rand Merchant Bank of FirstRand Group Ltd. “The Treasury will not be able to deliver.”

South Africa’s debt servicing costs likely reached 4% of GDP in 2019-20, the highest since 2003, and will continue to rise. The cost of servicing loans has been the fastest growing expenditure item since 2011 and monopolizes funds for development, including education and health.

The virus has forced the ruling party to break its longstanding resistance to borrowing from the International Monetary Fund, securing a $4.3 billion emergency loan to finance part of a stimulus package announced by the President Cyril Ramaphosa.

The Treasury could introduce a debt limit in the budget, a suggestion proposed by the IMF almost two years ago.

Talks with the World Bank risk reaching an impasse after the government rejected initial conditions attached to the funds it seeks to borrow.

South Africa could exceed its domestic financing needs for the year after issuing debt at an “alarming rate” to finance the budget deficit, said Mike van der Westhuizen, portfolio manager at Citadel Investment Services. The strong demand for long-term domestic loans is largely due to the Treasury doubling the non-competitive auction limit to 100%, he said.

This could give the Treasury the option of slowing the pace of domestic bond sales for the remainder of the fiscal year or continuing at the same pace to cover any larger-than-expected shortfall.


Yields on the country’s generic 10-year rand-denominated debt have climbed since 2012, when South Africa began its march towards a house full of junk credit ratings.

It lost its last investment grade rating from Moody’s Investors Service in March, more than 25 years after its first award. The downward revisions have increased borrowing costs and complicated efforts to reduce the fiscal gap.

According to Elina Ribakova, deputy chief economist at the Institute of International Finance. This could make the road to a debt crisis similar to that of Argentina or Greece slower and longer.

What Bloomberg’s Economist Says

“The National Treasury has made bold promises to restore public finances since 2017, only to drop the box later. This reflects the difficulty of controlling the wage bill and reducing transfers to public enterprises. Given the limited options available to implement the contemplated consolidation plan, this time will likely be no different.


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