SA does not have a specific target in terms of reducing the debt-to-GDP ratio, National Treasury director-general Dondo Mogajane said on Tuesday.
Ratings agencies have often highlighted that SA needs to return the fiscus to a sustainable path by reducing debt levels and the budget deficit, and also improving economic growth.
Speaking during the Distinguished Speakers Programme at the University of Cape Town Graduate School of Business, Mogajane said SA was stabilising its finances with the debt-to-GDP ratio now forecasted to stabilise at 56.2% in 2022-23, down from the 60% that was projected during the medium-term budget policy statement late in 2017.
"We do not have a target [in terms of the debt-to-GDP ratio] … we are always asked this question: What’s your target range? We do not have a target range. What is making us comfortable, and this is the story that Moody’s bought into and they have always known us to be saying that, is stabilising at a number unlike if it is shooting through the roof as it happened during the medium-term budget policy statement," said Mogajane.
Ratings agency Moody’s gave SA a reprieve at the weekend when it kept the country’s sovereign rating at Baa3, one notch above junk status, with a stable outlook. It cited, among other reasons for the decision to keep SA at investment grade, the change in the political leadership and the recovery of the country’s institutions.
A downgrade would have been devastating for SA as it would have meant all the three major ratings agencies had the country’s foreign-currency and rand-denominated debt at sub-investment grade. This would have triggered SA’s expulsion from the Citi world government bond index and projected capital outflows of R100bn.
"We had to defend the [credit] rating with our lives. We went to London and New York last week and we had to make sure that our story is understood," said Mogajane.
He said had SA been downgraded, the country’s debt service costs, which are currently at R180bn, would have increased by between R20bn to R30bn overnight.
The debt service costs remained a major worry for the Treasury, said Mogajane.
"They should actually be at zero to be quite honest."
Mogajane said he remained optimistic that the country could grow at about 3.5% or more in the coming years, provided it takes advantage of the "low hanging fruits" and deals with policy uncertainties in critical sectors such as mining.
On Tuesday, S&P Global Ratings revised SA’s GDP growth forecast for 2018 from 1% to 2%. It warned, however, that this was not enough to address the country’s unemployment crisis.
"[The revision of SA GDP growth forecast] is partly due to strengthening domestic and foreign investor sentiment following a change in the country’s leadership and ensuing policy announcements. An ongoing global upturn is also boosting demand for both commodities and manufactured goods," the ratings agency said.
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