Government managing debt amid tough financing environment

Wednesday, February 20, 2019

Despite a challenging environment, government continues to manage its debt and meet its financing needs in a sustainable manner, National Treasury said on Wednesday. 

“Over the past year, the financing environment remained challenging, and the weakening financial position of some State-owned companies put pressure on government’s financial resources. However, government continues to manage its debt and meet the country’s financing needs in a sustainable and responsible manner, drawing mainly from deep and liquid domestic financial markets,” Treasury said in its Budget Review document as Finance Minister Tito Mboweni tabled his budget speech in the National Assembly. 

Government debt, determined primarily by its borrowing requirement, is also affected by changes in inflation and exchange rates. 

Treasury said gross loan debt, which refers to the nominal value of all outstanding loan debt as well as inflation-linked and foreign debt, is expected to increase by R869 billion over the next three years. 

“Net debt is expected to stabilise at R4.52 trillion, or 57.3% of GDP, by 2024/25 and gross debt at 60.2% of GDP by 2023/24,” Treasury said. 

Government’s cash holdings increased sharply 

Treasury said, meanwhile, that government’s total cash holdings, which consist of deposits held at commercial banks and the Reserve Bank, stood at R235.8 billion at the end of 2017/18. 

“These balances have increased sharply, mainly to prefund large foreign-currency commitments due in 2019/20.” 

In 2018/19, rand cash balances increased by R21.5 billion, relative to the 2018 Budget. 

“This is due to a shift in the cash flow of social grant and interest payments from March to April 2019. 

“Of government’s total cash holdings for 2019/20, almost 81%, or R171.6 billion, constitutes official foreign exchange reserve deposits made with the Reserve Bank, which is available for government to use as bridging finance,” Treasury said. 

Government closely monitoring contingent liabilities 

Government closely monitors the status of its contingent liabilities, which are financial obligations that will only result in expenditure if a specific event occurs. 

Contingent liabilities include guarantees to State-owned companies, independent power producers and public-private partnerships. 

Contingent liabilities are expected to increase from R879.6 billion in 2018/19 to R1.02 trillion by 2021/22. 

Some of these include the contingent liability for post-retirement, medical assistance to government employees, which is unchanged from the previous year at R69.9 billion. 

Legal claims against government departments are estimated at R28.7 billion. 

Obligations for the Road Accident Fund have increased by R76.9 billion to R216.1 billion in 2018/19. 

“The risks posed by different categories of contingent liabilities vary,” Treasury said. –