Contingent liabilities, which are mainly guarantees to State-owned companies (SOCs), are projected to reach R979.9-billion on March 31, 2020.

According to Finance Minister Tito Mboweni, who tabled the 2020 National Budget, in Parliament, on Wednesday, government’s “long record of prudent debt management has enabled the National Treasury to consistently match higher borrowing requirements without dramatically increasing the cost of debt”.

Despite the challenging economic environment, government has continued to implement an “efficient and cost-effective” financing strategy that priorities funding liquidity while minimizing refinancing and currency risk without compromising the functioning of the domestic bond market.

However, Mboweni acknowledged that the current debt trajectory is not sustainable and said that it will have to be addressed by reducing expenditure, improving the financial positions of SOCs and increasing revenue collection through higher economic growth.

Meanwhile, South Africa’s debt and debt-service costs will continue to rise over the medium term, with gross national debt projected to be R3.56-trillion, or 65.6% of gross domestic product (GDP) by the end of 2020/21.

Borrowing is expected to reach R497.5-billion in 2022/23, and net debt to reach 67.8% of GDP over the same period.

The steep increase in debt and debt-service costs increases the risk to South Africa’s remaining investment-grade credit ratings, and is the result of weak economic growth, a deteriorating fiscal position, an increase in domestic bond redemptions, as well as large-scale support to distressed SOCs.

Over the past year, government’s gross borrowing requirement (the budget balance plus maturing loans) has increased 21.4% to R407.3-billion.

In 2020/21, the borrowing requirement will be R432.7-billion and will be met from short- and long-term borrowing in the domestic market, and from foreign-currency loans, National Treasury said.

South Africa’s gross loan debt is estimated to increase from R3.18-trillion (61.6% of GDP) in 2019/20, to R4.38-trillion (71.6% of GDP) in 2022/23.

Net loan debt is estimated to increase to R2.94-trillion (57% of GDP) in 2019/20, to R4.15-trillion (67.8% of GDP) in 2022/23.