SA DEBT RATIO ALARMS ESWATINI

MBABANE – The big jump in major trading partner South Africa’s gross national debt should be a big cause for concern.

That is the feeling of Minister of Finance Neal Rijkenberg in reaction to his South African counterpart Tito Mboweni’s Supplementary Budget presented on Wednesday.  The budget sets out a road map to stabilise debt, by improving spending patterns, and creating a foundation for economic revival following the disruptions caused by COVID-19.

Projection

Mboweni announced that their early projection was that gross national debt would be close to R4 trillion, or 81.8 per cent of gross domestic product (GDP) by the end of this fiscal year. This is compared to an estimate of R3.56 trillion or 65.6 per cent of GDP projected in February.
Experts say the debt-to-GDP ratio reliably indicates that particular country’s ability to pay back its debts. When a country defaults on its debt, it often triggers financial panic in domestic and international markets alike.

South Africa is a major contributor to the shared Southern African Customs Union revenue pool. As a member of SACU alongside Botswana, Lesotho and Namibia, when the neighbouring country’s economy sneezes, Eswatini catches a cold.

Circumstances

“SA (South Africa) is doing what they can under the circumstances but their jump from 65 to 81 per cent debt to GDP in one year should be of big concern,” said the minister when asked for his reaction to the neighbouring country’s revised figures.
Eswatini’s total debt stock stood at E23.2 billion at the end of May 2020, an equivalent of 32.4 per cent of GDP. It was slightly below the stipulated threshold of 35 per cent of GDP.

The minister had also planned to present the country’s Supplementary Budget to redirect the budget to COVID-19 related spending but he had to abort the plan he had to be excused from Parliament activities on Wednesday. He was said to be a contact to a COVID-19 positive case and he had to be isolated.
Meanwhile, according to Mboweni, the South African economy is now expected to contract by 7.2 per cent this year. This is the largest contraction in nearly 90 years.

Forecast

“Gross tax revenue collected during the first two months of 2020/21 was R142 billion, compared to our initial forecast for the same period of R177.3 billion. Put another way – we are already R35.3 billion behind on our 2020/21 target.
“As a consequence, gross tax revenue for the 2020/21 fiscal year is revised down from R1.43 trillion to R1.12 trillion. That means that we expect to miss our tax target for this year by over R300 billion,” said Mboweni.

In the Supplementary Budget, South Africa further revised the division of revenue presented in the 2020 Budget. A further R9 billion was reprioritised within allocated conditional grants to fund additional water and sanitation provision and the sanitisation of public transport.

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