Treasury’s plan to reduce debt services costs

Wednesday, February 23, 2022

National Treasury says to reverse the disturbing trend of using the public purse to service debt costs, a portion of the revenue improvements will be used to reduce the deficit over the next three years. 

This as National Treasury noted that debt‐service costs consume an increasing share of GDP and revenue. 

The risk of this is that interest payments on debt have crowded out spending on essential public services, such as health and basic education. 

“Over the medium-term, debt redemptions increase and debt‐service costs are expected to average R333.4 billion a year,” Treasury said. 

This means that on average, 20 cents of every rand collected in revenue every year will not be used on essential services, but will be needed to pay debt service costs. 

“To reverse this trend, a portion of revenue improvements will be used to reduce the deficit over the medium‐term expenditure framework (MTEF) period. 

“As a result, the debt trajectory improves compared to the 2021 Medium-Term Budget Policy Statement. 

“Gross loan debt will stabilise at 75.1% of GDP in 2024/25, a year earlier and at a lower level than projected in the 2021 MTBPS,” said Treasury. 

The department said, meanwhile, that government has failed to close the large gap between revenue and expenditure which emerged during the 2008 global financial crisis. 

Since then, rising expenditure, unmatched by revenue growth, has led to primary deficits and a sevenfold increase in public debt. 

“Government debt amounted to R627 billion in 2008/09, rose to R2.02 trillion in 2015/16 and is projected to increase to R4.35 trillion in 2021/22. 

“Put another way, inflation‐adjusted public debt in 2008/09 was equivalent to R22 869 per capita; today, it is equivalent to R69 291 per capita. 

“Over the same period, the real interest costs on this debt more than doubled from R1 984 to R4 278 per person per year. 

“This trajectory far exceeds per‐capita GDP growth and cannot be sustained,” said Treasury. –

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