SA could face long-term scars in investor sentiment and job growth
South Africa’s sovereign debt costs immediately rose amid civil unrest in KwaZulu-Natal and Gauteng last month as buyers of South African bonds demanded higher interest rates for the risk additional.
This is what the deputy director general of the national treasury in charge of economic policy, Duncan Pieterse, said yesterday during a presentation to the Parliament’s select committee on finance.
He said that even if interest rates on South Africa’s long-term bonds had fallen slightly since then, the unrest would undoubtedly have an effect on the amount of interest payable by the government to the future, its budgetary position and how it spends the funds at its disposal.
He said the interest rate on South Africa’s 10-year bonds stood at 9.06% on July 9, but rose to 9.16% on July 19.
The 10-year bond rate edged up to 9.12% on August 22, in line with other emerging markets. A similar trend was seen in the 30-year bond rate, Pieterse said.
To provide an estimate of the current amount of government debt, Pieterse said debt servicing costs currently stand at R 233 billion per year, compared to R 247 billion spent annually by the Department of Health. and 219 billion rand allocated by the government for peace spending. and security.
He said the rand-dollar exchange rate appreciated from the start of the year to June, against other emerging market currencies, mainly due to the large impact of higher commodity prices on the economy.
However, between July 9 and July 19, the currency depreciated by 2.4%, while other emerging market currencies were relatively stable during this period.
Pieterse said only 6% of small businesses affected by the unrest had since reopened – 89% of businesses affected by the unrest were small businesses.
He said small businesses were most vulnerable when an event such as unrest closed, as they often lacked insurance or large cash reserves, and the low level of reopens did not bode well. good for future employment prospects.
Forty-four percent of businesses affected by the unrest had closed temporarily.
“We are concerned about the potential (longer term) scarring effect on employment and investor sentiment,” he said.
He said the impact of unrest and the threat of further unrest would hamper the positive economic growth momentum this year, driven by rising commodity prices and the global economic recovery.
At this point, and as the forecast changes at the time of the medium-term fiscal policy statement in October, the National Treasury expects the unrest to reduce 0.7 to 0.9 percent of gross domestic product from This year.
Finance Committee Chairman Yunus Carrim said he was convinced civil unrest could reappear due to structural inequalities in South Africa, and that a social fund would go some way to reducing such inequalities.
“In countries where inequalities are enormous, inequalities do not create the conditions for sustainable growth,” he said.