Debt levels could make SA vulnerable

Wednesday, March 13, 2013

Pretoria - The country’s levels of debt make it vulnerable to economic shocks although in the past the country has been able to reduce its public debt, says Finance Minister Pravin Gordhan.

Speaking in Parliament on the debate of the Fiscal Framework and Revenue Proposals on Tuesday, Gordhan said during the mid-2000s the country reduced its public debt substantially. The fiscal space allowed a robust countercyclical response to the recession in 2009.

The slow economic recovery and substantial deficits have eroded South Africa’s debt position compared to its peers, he said.

“This has a number of negative consequences for South Africa. First, it means that we are vulnerable in the event that economic circumstances take a turn for the worse. The fiscal space available to us is narrower. Second, high levels of government debt put upward pressure on interest rates and can have other effects which undermine growth and investment in the economy,”  he said.

Gordhan said rising debt leads to rising debt service costs. The deteriorating debt position will see debt-service costs with government spending R118 billion to service debt in 2015/16. This will be more than the budget for police services in 2015/16 which will be R80 billion, or the salaries of healthcare workers, which will amount to R96 billion. 

Although the 2013-14 Budget showed a narrowing of fiscal space it supports economic growth.

“Rebuilding the fiscal space we had achieved before the recession will require us to continue along a path of moderate growth in spending. It also means that structural increases in spending for instance as a result of new policy reforms such as the introduction of a National health insurance scheme would require concomitant increases in revenue,” said the minister.

Gordhan added that government is committed to ensuring that a greater share of public funds becomes available for capital investment over time.

Additionally the Ministers’ Committee on the budget will oversee expenditure reviews in the coming year to analyse patterns of public spending, including personnel spending.

“The reviews will also identify opportunities to improve value for money, such as enhanced procurement controls and the phasing out of projects that are ineffective or no longer aligned with policy priorities,” he said. -