Nene warns on danger of growing govt debt

The SA govt’s debt has grown from 21,8% five years ago to 40,8% in the 2014 financial year.

FILE: Finance Minister Nhlanhla Nene. Picture: GCIS.

JOHANNESBURG - Finance Minister Nhlanhla Nene says the Treasury's interventions to stabilise the South African economy are limited if government debt levels are too high.

Nene this morning opened the third Commonwealth Conference on Public Debt Management in Sandton.

He says the South Africa government's debt has grown from 21,8 percent at the start of the financial crisis five years ago to 40,8 percent in the 2014 financial year.

Nene says low domestic growth remains one of the biggest threats to emerging market economies like South Africa.

"We should reduce revenue collections, we should widen the primary balance and increase debt service costs."

He says there are limits to government's interventions.

"Government borrowing has risen in the post-crisis years to counter the effects of the crisis. However, there appears to be limits to stabilise the economy when government debt is too high; this means fiscal policy becomes weaker."

Nene says the IMF predicts global economic growth of 3,5 percent this year.

The finance minister adds that the global effect of economic instability in developed countries was not the primary reason for South Africa's low growth in the last quarter.

"Recent data shows that domestic economic landscape remains indeed a challenging one, highlighting the negative impact of energy challenges our country is currently facing."

But he says government has a plan to change this.

"We've taken several steps to address the energy challenge and expect that economic growth will reach 3 percent in 2017/2018 as more electricity comes onto the grid and as consumer spending improves and trade with the rest of Africa rises."

Nene has also warned that emerging market countries must now consider the rising cost of paying back debt due to rising interest rates.