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Higher commodity prices will help South Africa reduce its debt sooner than expected, allaying fears of a looming debt crisis in Africa’s most industrialised economy.
Enoch Godongwana, the finance minister, warned in a Budget delivered on Wednesday that “one swallow does not a summer make,” but said he would use a R182bn ($12bn) boost to tax revenues — versus estimates made a year ago — to slash the deficit and cut borrowing.
High debt-servicing costs, expensive bailouts for state-backed companies and surging public sector wages have in recent years taken their toll on an economy beset by stagnant growth and falling tax revenues. South Africa’s debt has surged in recent years because growth has fallen far behind the interest rates the country pays to borrow.
On Wednesday, the minister said that President Cyril Ramaphosa’s government would balance the budget before interest payments by 2024 and debts will peak at 75 per cent of gross domestic product by 2025, both a year earlier than projected by the South African National Treasury’s forecasts.
South African miners benefited from surging prices for platinum, iron ore and other big exports last year as global demand roared back after pandemic conditions improved. This week South Africa-focused Anglo American Platinum, the world’s biggest platinum miner by market capitalisation, said it would pay out more than $5bn in dividends for 2021.
Because of its windfall South Africa will also reduce annual borrowing this year for the first time since 2015, by R136bn. However, Godongwana cautioned that the country was still battling economic stagnation and high joblessness.
“The improved revenue performance is not a reflection of an improvement in the capacity of our economy,” Godongwana said. “As such, we cannot plan permanent expenditure on the basis of short-term increases in commodity prices.”
Godongwana’s words will be seen as a warning shot in a fierce debate within Ramaphosa’s ruling African National Congress about whether to introduce a basic-income grant for the poorest.
While R44bn will be put aside this year for an extension to a pandemic jobless grant that is seen as a prototype for a basic income, the National Treasury warned in budget documents that a new social grant “cannot be accommodated without matching permanent increases in revenue”.
Many parts of South African state spending, such as the public sector wage bill, rose sharply during the past decade even as investment in infrastructure foundered along with the economy. Growth will only be about 2 per cent this year, according to Treasury forecasts.
In the past decade South Africa also spent more than R300bn on bailing out state-owned companies that were hollowed out by waste and corruption, in particular systematic looting under Jacob Zuma, the former president.
Eskom, the indebted state power monopoly that is prone to rolling blackouts, has received R136bn alone in recent years and Godongwana will allocate another R88bn of bailouts for the utility before 2026.
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