South Africa will increase the amount of debt on sale at its weekly auctions by nearly 2 billion rand ($109 million) to cover a budget deficit set to increase sharply due to the coronavirus stimulus package announced by President Cyril Ramaphosa.
In a market announcement published on Friday on Johannesburg Stock Exchange, the National Treasury said it would increase the amount on offer at weekly government bond auctions by a combined 1.93 billion rand as part of plans it outlined in its February budget.
The amount on offer at the fixed-rate government bond auction will rise by 1.57 billion rand to 6.1 billion rand as of May 19, while the weekly inflation-linked bond auction amount will increase by 360 million rand to 1.4 billion rand from May 15, the treasury said.
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The treasury had delayed the announcement of the increase due to “market uncertainty that emanated from the COVID-19”, but said in the statement that the “market has stabilized somewhat” allowing it to push through the changes.
Ramaphosa announced a 500 billion rand rescue package in late April to try to cushion the economic blow of the pandemic that has so far seen more than 10,000 infections in the country.
The extra spending, which includes unemployment and higher social income grants, as well as support to businesses, is set to push the country’s budget deficit above 14% of gross domestic product (GDP) in 2020/21 from the 6.8% shortfall forecast by treasury.
The spending will also ramp-up already soaring public debt to around 90% of GDP, raising the danger of deeper credit-rating downgrades to junk after Moody’s and Fitch pulled the trigger in April.
An increase in auction amounts, as well as new bond issuance in local and foreign capital markets, has been expected by analysts concerned about the inevitable plunge in economic growth and tax revenue due to the national lockdown now in its seventh week.
“These figures were larger than expected,” said analyst at Intellidex Peter Attard Montalto in a note. The increases of around 35% are higher than the 25% hike forecast by the firm.
“This is OK for now given the market is cash flush, but it shows the importance of having a full emergency budget as soon as possible. The issue is in the future for us – if such a level of issuance can be sustained or even stepped up through this fiscal year into next year when the deficit becomes stuck at 10%.”