SA’s debt trajectory too high, no buffers for global crisis – central bank

South Africa’s rising debt trajectory will make it difficult to weather a significant global economic downturn, the central bank deputy governor said, adding it would take at least a decade to bring the debt-to-GDP ratio down to the 30 to 40% range.

The Treasury said the 2019 budget revealed last month that net debt was projected at 49.9% of GDP in the current 2018/19 fiscal year ending this month and was seen rising to 55.5% by 2021/22.

“You have to take some pretty tough steps … and it will take a decade to do it, to bring it back down to 30 to 40% of GDP,” the central bank’s deputy governor Kuben Naidoo told a trade and investment meeting in Cape Town on Wednesday.

Naidoo also said growth in Africa’s most industrialised economy would hover around the 2% in the next few years, while factors such as higher electricity tariffs would influence the consumer price inflation outlook.

South Africa’s energy regulator Nersa last week granted power utility Eskom average tariff increases of 9.4%, 8.1% and 5.2% over the next three years.

Nersa had already granted Eskom a roughly 4% tariff increase in 2019/20 as part of an earlier cost recovery application, so the effective tariff increase felt by South Africans in 2019/20 will be over 13%.

“Eskom hikes will put upward pressure on inflation and we would have to take this into account at the next (monetary policy committee) meeting,” Naidoo said. He added that electricity forms about 5% of CPI basket, “so a 15% tariff hike could increase CPI by about (0.75%)”.