SA Government Debt November 2010

Last week, the IMF released their updated Fiscal Monitor, which focuses on the global move to fiscal austerity. The document is extremely interesting, and highlights a number of key issues including the contrast in government debt levels between emerging and mature economies. For example, in 2011 the government debt level in mature economies is estimated at 102% of GDP (with Japan at 234%, Greece at 139%, and Iceland and Ireland around 107%), while in emerging economies the ratio is estimated at a very respectable 37.3%.

Historically, a government debt to GDP ratio of 60% or less was considered acceptable. Ironically, the 60% ‘rule’ was propagated by mature economies.

As mentioned in our research note on the government’s recent Medium Term Budget Policy Statement (MTBPS); SA government debt to GDP has been on the rise, increasing from an extremely modest 27.7% of GDP in 2007/2008 to 36.4% of GDP in 2010/2011 and 39.2% in 2011/2012. The upward drift is understandable given the increase in the budget deficit during the past couple of years, largely as a result of the revenue shortfall in 2009/2010. The counter-cyclicality of fiscal policy is very welcome.

Despite the upward drift in government’s level of debt, a ratio of 38.1% of GDP in calendar 2011 is very acceptable when compared with almost all mature economies and most of the emerging markets. In fact, out of a list of 55 countries, supplied by the IMF, South Africa ranks a very respectable 17th in terms of having the lowest level of government debt in relation to the size of the economy. In addition, the MTBPS reflects a longer-term commitment to reduce the budget deficit to around 3% of GDP over the next 3 years; and therefore contain the current rise in debt levels.

Many of the public sector (service delivery) difficulties in South Africa are not purely a function of the budget allocation, but rather the ability of each government department to spend their budget allocation effectively.

Download the presentation slides