As the National Treasury prepares for its medium-term budget policy statement next week, the IMF’s most recent Fiscal Monitor shows SA is hardly alone in its public debt woes, with global public debt projected to reach $100-trillion or 93% of GDP in 2024 — and to approach 100% by 2030.
The IMF also has a new “debt at risk” framework which suggests that in a severe adverse scenario, global public debt could rise to 115% of GDP by 2026, though this is driven largely by the world’s largest economies, particularly the US and China, rather than by emerging market and developing economies.
Still, the IMF warns that fiscal adjustments now in the pipeline in most countries will be insufficient to deliver stable or declining debt ratios with any confidence.
At the release of the Fiscal Monitor in Washington DC on Wednesday, Vitor Gaspar, director of the IMF’s fiscal affairs department, said delaying adjustments could be costly and risky. And for Sub-Saharan Africa, he said, “Building fiscal space is not only crucial to limit public debt risks but ... is key to enabling the state to play its full role in development.”
The IMF’s latest projections on SA’s fiscal outlook are once again more pessimistic than those of the Treasury and most private economists. It sees the general government overall balance improving from a deficit of 6.2% in 2024 to 5.1% in 2029, but it still sees SA’s gross debt continuing to rise, from 75% of GDP in 2024 to 83.6% by 2029.
This is in contrast to the Treasury’s projection in February that the public debt level would stabilise in the next fiscal year, 2025/26, at 75.3% of GDP. At that point the Treasury pencilled in a main budget deficit that’s expected to decline to 4.3% in the current fiscal year, from 4.7% last year, and to come down further to reach 3.4% within three years.
Ahead of the medium-term budget on October 30, economists say the Treasury is on track with its plans to stabilise the public debt, and some even expect the numbers to be better than its February budget forecasts. Absa economist Miyelani Maluleke said in a note this week that though revenue growth of 3.6% for the fiscal year to date was behind the Treasury’s full-year target of 5.4%, there is scope to recover in the second half, while expenditure is likely to undershoot budget estimates thanks to lower-than-expected debt service costs.
Maluleke expects the Treasury will slightly outperform its 2024/25 fiscal targets, with the deficit coming in at 4% for the current year.
Economists at Citi said the medium-term budget would near its targets more confidently, with the Treasury on track to come in at or close to its February projection of a 4.3% main budget deficit.
Credibility gap
But while economists such as Goldman Sachs’ Andrew Matheny see even better outcomes, they caution that SA still has much to do to close the fiscal credibility gap, with sovereign bond yields still not reflecting the expected improvement in fiscal dynamics.
The IMF’s latest fiscal numbers show that public debt is projected to stabilise or decline in two-thirds of the 70 countries it surveyed for its “debt at risk” monitor, but still at well above pre-pandemic levels. And the risks are tilted to higher rather than lower debt levels, especially in advanced economies, which in an adverse scenario could reach debt to GDP of 134% three years out, compared to 88% for emerging markets and developing economies.
“Rebuilding fiscal buffers in a growth-friendly manner and with strong fiscal governance is essential to ensure sustainable public finances and financial stability,” the Fiscal Monitor states.
On the IMF’s debt measures, SA’s deficit is slightly higher in 2024 than the 5.7% average for emerging market and developing economies, which is seen falling to 5.3% by 2029 — at which point SA’s deficit will be lower than the average — but by then its debt ratio, at the 83.6% projected by the IMF, will be higher than the emerging market and developing economy average of 80.6%.
However, all of this pales in comparison to China’s present debt-to-GDP ratio of 90.1% or the US’s 121%, and rising.
The fiscal dynamics of these “systemically significant” economies are likely to result in a notable fallout for the rest of the world: the Fiscal Monitor cautions that global factors will increasingly drive countries’ cost of borrowing in coming years and volatility will increase.
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