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SA needs to counter debt levels- Gordhan
March 14, 2013, 10:29 am


The finance minister said that rising debt led to rising debt service costs [AP]

South Africa needs to urgently address the country’s current debt levels that render it vulnerable to economic shocks, says Pravin Gordhan, the country’s finance minister.

Speaking in Parliament in Cape Town on the debate of the Treasury’s Fiscal Framework and Revenue Proposals on Tuesday, Gordhan said that the country had reduced its public debt substantially during the mid-2000s.

This had created the fiscal space that enabled the country to sustain a robust countercyclical response to the global financial crisis of 2008-09. However, slow economic recovery since then, along with substantial deficits, had eroded South Africa’s debt position compared to its peers, Gordhan said.

“This has a number of negative consequences for South Africa. First, it means that we are vulnerable in the event that economic circumstances take a turn for the worse. The fiscal space available to us is narrower” said Gordhan.

“Second, high levels of government debt put upward pressure on interest rates and can have other effects which undermine growth and investment in the economy.”

Gordhan said that rising debt led to rising debt service costs.

The deteriorating debt position would see debt-service costs outstripping all others, with the government forecast to spend R118 billion to service its debt in 2015-16.

This would be more than the budget for police services, forecast to be R80 billion, or the salaries of healthcare workers, expected to amount to R96 billion.

Although the 2013-14 Budget showed a narrowing of fiscal space, it continued to support economic growth, Gordhan said.

“Rebuilding the fiscal space we had achieved before the [2009] recession will require us to continue along a path of moderate growth in spending.”

“It also means that structural increases in spending, for instance as a result of new policy reforms such as the introduction of a National Health Insurance scheme, would require concomitant increases in revenue.”

Gordhan added that the government was committed to ensuring that a greater share of public funds became available for capital investment over time.

He said a ministers’ committee on the budget would oversee expenditure reviews in the coming year to analyse patterns of public spending, including personnel spending.

“The reviews will also identify opportunities to improve value for money, such as enhanced procurement controls and the phasing out of projects that are ineffective or no longer aligned with policy priorities,” said the finance minister.

Source: Agencies