The Treasury has upped its weekly short-term borrowing as tax collections slide and investors’ appetite for longer-term debt dwindles, with growing concerns about the outlook for public finances driving up SA’s borrowing costs and its
risk premium.
Treasury director-general Duncan Pieterse said issuance of treasury bills had been raised by about R2bn to more than R14bn a week from the beginning of August. Investors are still showing up for the Treasury’s weekly auctions but their resistance is clear from the rise in yields across all maturities of state bond since the February budget.
Economists estimate the government will have to borrow about R600bn this year to finance its deficit and raise the cash for Eskom’s debt restructuring as well as to redeem existing debt that matures in the coming year.
But with revenues set to fall well short of February’s budget estimates and spending pressures rising, investors are increasingly concerned about the long-term outlook — and willing to buy new longer-term bonds issued by the government only at yields that are among the highest in emerging markets.
Market players said yields on long bonds are pricing in fiscal stress and demand for them at the weekly auctions has been limited. But there is strong appetite for the short term T-bills: “At least you feel comfortable you will get your money back in 12 months; that’s less so on a bond that matures in 2053,” said a market player, who estimates the increase in issuance will raise total take from T-bills this year to around R100bn.
Speaking to editors on his first media outing since he took over as director-general on September 1, Pieterse said his priority is to restore the strength and credibility of SA’s fiscal framework. The Treasury is working on a credible fiscal narrative for the medium-term budget statement on November 1.
“The underperformance in revenue collections this year has meant we have to think very differently now about what a credible fiscal framework looks like. One of the tasks we have is placing the trade-offs very starkly and clearly at the centre of the budget process. One of our roles is to advise the minister and cabinet on the trade-offs and ... we need to put it in very concrete terms,” Pieterse said.
He declined to discuss the medium-term budget statement or the Treasury’s recent meeting with the cabinet on cost cuts,
but pointed out that President Cyril Ramaphosa had indicated earlier this year that the Treasury and the presidency are working on recommendations on a reconfigured state, given that the current one is not fit for purpose. That includes the structure of the state as well as of the various programmes.
Pieterse, who joined the Treasury a decade ago and has headed the economic policy and asset and liability management departments, has also made it a priority to invest in the Treasury as an institution and strengthen how it works with other
stakeholders, inside and outside government.
Greylisting
He said SA’s greylisting by the Financial Action Task Force has had an impact on its cost of debt and its risk premium, though those had largely been priced in before the FATF decision in February. The Treasury will meet the FATF in Jordan this week to get a sense of how SA is doing on the 22 actions it has to implement in order to get off the greylist.
On Eskom, he said the VGBE team of independent experts commissioned by the Treasury to do an in-depth study of Eskom’s coal-fired power stations as a condition of the debt restructuring has reported its preliminary findings. The finance minister will see the report this week and will then decide how and when to make the findings public and socialise the outcome with other government departments and Eskom.
As investment in new private renewable energy projects ramps up, Eskom’s constrained transmission infrastructure has become a major obstacle. However, Pieterse said, new investment in transmission could and should start and nothing stops Eskom from going ahead before the new independent transmission entity is fully established.
Still, the investment needed is far greater than the capacity of Eskom’s balance sheet, and the Treasury is working with it and the department of public enterprises on how to bring in the private sector.
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