October 26, 2017

Market News

All aboard! Next stop, the IMF…

All aboard! Next stop, the IMF…

Cutting through the waffle of Minister Gigaba’s budget speech exposes the ugly reality. Government needs to borrow and borrow plenty. Over the next 3 years an estimated ZAR 950bn will be needed to fund Government’s deficit taking total debt to ZAR 3.5tn – Let’s take a minute to digest this… In 3 short years, Government will increase total debt accumulated to date, by almost 50%. Coupled with a poor GDP growth outlook, Debt/GDP is forecast to increase to 60% from current levels of 52%.

South African Debt to GDP

At no point do these forecasts take into account potential downgrades by international ratings agencies, whose macro-economic fears for SA have just been re-affirmed. At the epicentre of this disaster is the sheer lack of political will to turn the country around, the Minister’s confirmation of yet another capital injection for SAA being just one case (of many) in point. In a world where institutional investors, global pension and sovereign funds are restrained from investing in junk-rated bonds, one has to ask; How and more importantly Where will Government raise the funds necessary to run the country?

Next stop, the IMF.