November 28, 2020
  • November 28, 2020
President Cyril Ramaphosa

South African debt crisis can be avoided, President Says

By on November 18, 2020 0 125 Views

South Africa’s government is committed to reining in its debt and will avoid a sovereign debt crisis, President Cyril Ramaphosa said.

“I am certain that we will be able to bring our debt levels down and avoid what you could call a debt crisis because we are focused,” Ramaphosa said in an interview Wednesday with Bloomberg Television on the sidelines of an investment conference in Johannesburg.

“We have too much debt and a country that needs to grow needs to reduce its debt.”

Finance Minister Tito Mboweni has repeatedly warned that borrowing has reached unsustainable levels and must be reined in. His mid-term budget released last month envisions debt peaking at 95.3% of gross domestic product in the 2026 fiscal year. That’s two years later than forecast in February because the fallout from the coronavirus pandemic has slashed tax revenue.

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Improving the government’s finances will hinge on freezing wages for 1.3 million state workers for the next three years, a proposition that labor unions have rejected. The Congress of South Africa Trade Unions, the country’s largest labor group, has warned it may withdraw its electoral support for the ruling African National Congress should the pay proposals not be revised.

Fixing Eskom
Talks with the unions are ongoing and various pay options are under consideration, according to Ramaphosa.

The president also said that the debt-stricken state power company Eskom Holdings SOC Ltd. is finding ways to bolster its revenue and improve its debt collection. The utility’s 484 billion rand ($31 billion) of debt was once called South Africa’s biggest economic risk by Goldman Sachs Group Inc.

“Innovative ideas are being put on the table on how to deal with the debt,” Ramaphosa said. “We are determined to ensure that Eskom is not bogged down because of the debt and that Eskom continues to function.”

The investment conference is the third Ramaphosa has hosted since taking office in 2018, and forms part of a drive to revive an economy that the Treasury expects to contract 7.8% this year.

International Monetary Fund data shows investment as a percentage of South Africa’s gross domestic product has been in decline since 2016 and the Washington-based lender forecasts that the ratio will reach a record low of 13% this year. That compares with 25.4% in Nigeria and 21.5% in Angola.

South Africa investment as a ratio of GDP has dropped for five straight years
The situation is reversing, and will be aided by the government and state companies increasing infrastructure investment, according to Ramaphosa.

“We set ourself a goal of attracting $100 billion into our economy in five years,” he said. “We are already more than halfway there. Commitments are being made by companies and many of these commitments are actually being actualized.”

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