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The South African government is committed to controlling its debt and will avoid a sovereign debt crisis, said President Cyril Ramaphosa.
“I am confident that we will be able to reduce our debt levels and avoid what could be called a debt crisis because we are focused,” Ramaphosa said in an interview Wednesday with Bloomberg Television on the sidelines of an investment conference in Johannesburg. “A country that needs to grow needs to reduce its debt.”
Finance Minister Tito Mboweni has repeatedly warned that borrowing has reached unsustainable levels and must be stopped. Its medium-term budget last month predicts liabilities to peak at 95.3% of gross domestic product in fiscal 2026.
That’s two years later than expected in February because the fallout from the coronavirus pandemic has slashed tax revenue.
Improving government finances will depend on freezing the wages of 1.3 million state workers for the next three years, a proposal that unions have rejected. South Africa’s Congress of Trade Unions, the country’s largest labor group, has warned that it could withdraw its electoral support for the ruling African National Congress if wage proposals are not reviewed.
Fixing Eskom
Talks with the unions are ongoing and various options are being considered, according to Ramaphosa.
The president also said that the indebted state power company, Eskom Holdings SOC Ltd, is finding ways to boost its revenue and improve its debt collection. Goldman Sachs Group Inc. once rated the utility’s 484 billion rand ($ 31 billion) debt as South Africa’s biggest economic risk.
“Innovative ideas are being brought to the table on how to deal with debt,” Ramaphosa said. “We are determined to ensure that Eskom does not get bogged down by debt and that Eskom continues to operate.”
The investment conference is Ramaphosa’s third since he took office in 2018 and is part of a push to revive an economy the Treasury expects to shrink by 7.8% this year.
Data from the International Monetary Fund shows that investment as a percentage of South Africa’s gross domestic product has been in decline since 2016, and the Washington-based lender forecasts the share to hit a record low of 13% this year. That compares with 25.4% in Nigeria and 21.5% in Angola.
The situation is being reversed and the government and state companies will help increase spending on infrastructure, according to Ramaphosa.
“We set a goal of attracting $ 100 billion to our economy in five years,” he said. “We are already more than halfway there. Companies are making commitments and many of these commitments are being updated ”.
Fifty companies pledged to invest a total of R109.6 billion ($ 7.1 billion) in South Africa at the conference, bringing total pledges in the last three years to R773.6 billion. The new commitments included R32 billion in financing from the New Development Bank and R8 billion from the state-owned Industrial Development Corporation.
“Businesses are looking beyond the pandemic to invest in a growing economy,” Ramaphosa said in his closing speech. “There must be something they are seeing in our country.”
Read: Why You Should Put Your Money In South Africa: Ramaphosa
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