Thanks to more upbeat revenue collections that have bumped up the government’s cash balances, the National Treasury is set to reduce its bond issuance this year, it said in the 2021 Budget Review.
The move is likely to be welcomed by the local capital market, which came under pressure after marked global financial volatility sparked a sell-off by international investors, and SA received a series of ratings downgrades from all three ratings agencies, leaving it firmly in sub-investment grade.
At the same time, the government stepped up issuance during 2020 to fund Covid-19 spending pressure, even as tax revenues plummeted, lifting the main budget deficit to 12.3% of GDP.
A revenue overrun of R99.6bn more than was forecast in the October medium-term budget policy statement (MTBPS) has, however, increased the government’s cash balances, which will be used to reduce the borrowing requirement and, consequently, debt issuance, the Treasury said.
Weekly auction estimates for Treasury bill issuance is estimated to be reduced from R12.9bn to R12.3bn, while the reduction in bond issuance will be announced ahead of the first auction of the new financial year.
The gross borrowing requirement for 2020/2021 is now expected to come in at R670.3bn, down from the medium-term budget forecast of R774.7bn or 13.6% of GDP. It is set to decline to R541.6bn by the 2023/2024 fiscal year.
During 2021/2022, borrowing will be funded from short- and long-term borrowing in the domestic market and foreign currency loans.
The Treasury said it will continue its bond-switch programme over the medium term, switching shorter-dated for longer-dated bonds, and using surplus cash balances from borrowing to reduce refinancing risk.
Alternative funding sources will also be sourced, including the issuance of a domestic rand-denominated Islamic sukuk [sharia-compliant bonds] in 2021/2022, as well as listing retail savings bonds to improve their accessibility and funding levels.
The Treasury will also explore lower cost funding from international finance institutions to meet foreign currency commitments. During 2020, it accessed $5.6bn in loans from the International Monetary Fund (IMF), the African Development Bank and the New Development Bank.
However, the Treasury also flagged several risks to its financing strategy, including a rising budget deficit and further credit ratings downgrades.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.