Mboweni warns that any slippage in fiscal framework will see debt overtake GDP

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The higher the debt to GDP ratio rises, the less likely a country is able to pay down its debt and its risk of defaulting increases, with potentially ruinous consequences.

Finance Minister Tito Mboweni delivers his medium-term budget policy statement on 28 October 2020. Image: @tito_mboweni/Twitter

CAPE TOWN – Finance Minister Tito Mboweni has told Parliament that any slippage in the fiscal framework he unveiled on Wednesday could see South Africa’s debt to GDP ratio climb to more than 100%.

The higher the debt to GDP ratio rises, the less likely a country is able to pay down its debt and its risk of defaulting increases, with potentially ruinous consequences.

• READ: Tito Mboweni’s Medium-Term Budget Policy Statement

In his Mid-Term Budget Policy Statement yesterday, Mboweni outlined plans to cut spending to shrink the budget deficit. Gross national debt is projected to stabilise at 95.3% of GDP by 2025.

Mboweni and Treasury officials were briefing Parliament’s Finance and Appropriations committees.

Tito Mboweni said that South Africa was now in dangerous waters.

“We think we are now in the danger zone because any slippage will easily lead us to the 100% mark or even greater, which means the debt will be greater than GDP.”

Mboweni said that debt service costs, which were the fastest-growing item of expenditure, must also be very carefully managed. South Africa’s debt currently stood at over 81% of GDP, around R4 trillion.

Asked by the Democratic Alliance (DA) why SAA had been bailed out yet again, Mboweni reiterated that the R10.5 billion was not a bailout for the airline but to fund the business rescue process.

“That new airline that is being thought about, will have private investors, probably along the lines of Telkom structurally, in terms of issued capital subscription agreements independent boards of directors independent management and so on. That’s my understanding… and I might be wrong, but that’s my understanding.”

The money for SAA was taken away from other departments, with the police and education taking the biggest cut of a combined R2.3 billion.

WATCH: Mboweni: Government is borrowing at a rate of R2.1 billion per day



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