S. African finance minister urges "active steps" to stabilize debt

Source: Xinhua| 2020-06-24 23:42:15|Editor: huaxia

CAPE TOWN, June 24 (Xinhua) -- Finance Minister Tito Mboweni on Wednesday called for "active steps" to rapidly stabilize debt and grow the economy so as to avoid a sovereign debt crisis.

"By doing this we will create jobs, reduce the cost of doing business and build a competitive economy," Mboweni said when presenting his Supplementary Budget Speech to a joint sitting of Parliament.

To reduce the reliance on borrowing becomes more urgent amid gloomy prospects for the South African economy which is expected to contract by 7.2 percent in 2020 due to the COVID-19 pandemic, the largest contraction in nearly 90 years, the minister said.

South Africa has been hit hard by both the collapse in global demand and the restrictions to economic activity, he said.

"But debt is our weakness. We have accumulated far too much debt; this downturn will add more," said Mboweni.

Without external support, these borrowings will almost entirely consume all of South Africa's annual domestic saving, leaving no scope for investment or borrowing by anyone else, Mboweni said.

"For this reason, we need to access new sources of funding," he said.

The government intends to borrow about 7 billion U.S. dollars from international finance institutions to support the pandemic response.

"We must make no mistake, these are still borrowings. They are not a source of revenue. They must be paid back," Mboweni cautioned.

This year, out of every rand that South Africans pay in tax, 21 cents goes to paying the interest on their past debts, he said.

South Africa's projected total consolidated budget spending in this fiscal year, including debt service costs, will exceed two trillion rand (about 117 billion U.S. dollars) for the first time ever, according to Mboweni.

"This indebtedness condemns us to ever higher interest rates. If we reduce debt, we will reduce interest rates for everyone and we will unleash investment and growth," the minister said.

Projection shows that South Africa's gross national debt will be close to four trillion rand, or 81.8 percent of GDP by the end of this fiscal year. This is compared to an estimate of 3.56 trillion rand or 65.6 percent of GDP projected in February.

Mboweni warned that South Africa's debt will spiral inexorably upwards and debt-service costs will crowd out public spending on education and other policy priorities.

A wide gate opens for South Africa to a path of bankruptcy -- a sovereign debt crisis, when the country can no longer pay back the interest or principal on its borrowings, Mboweni said.

"We are still some way from that. But if we do not act now, we will shortly get there," he cautioned.

The results are devastating -- interest rates sky-rocket, spending has to stop, inflation takes hold and people grow much poorer, Mboweni said.

But taking an active approach through reducing reliance on borrowing "opens to a path of prosperity" for South Africa, he said.

The government will narrow the deficit and stabilize debt at 87.4 percent of GDP in 2023-2024, according to Mboweni.

The cabinet has also adopted a target of a primary surplus by 2023-2024, the minister said.

"This means that we will try to reduce all expenditure that we thought we can no longer afford. After all, we are not as rich as we were 10 years ago," he said. Enditem

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