Abstract
The global financial crisis had a much more pronounced impact on South Africa relative to some other large emerging markets. The overriding economic policy challenge is to reduce unemployment and inequality through higher economic growth. Unemployment is a key policy focus; and a wage subsidy aimed at younger unskilled workers, as well as other policy options, are under discussion. IMF staff broadly concur with the authorities’ approach, and believe that the current fiscal plan strikes the right balance between supporting the recovery through sustained infrastructure investment while ensuring fiscal sustainability.
1. South Africa’s external debt is projected to rise to 35 percent of GDP by 2015. The increase in external debt by around 7 percentage points of GDP reflects the widening of the current account deficit to above 7 percent of GDP from 2013–15 as growth recovers, the import-intensive infrastructure investment program progresses, and dividend payments abroad pick up again. The real effective exchange rate is also currently on the strong side which, if sustained, is likely to contribute to a widening current account deficit. Although the external debt level is rising it is increasing from a low level and given South Africa’s deep domestic financial markets, a significant part of the deficit is expected to be financed—as in the past—by nonresident portfolio flows, around 60 percent of which are equities and nondebt creating. Portfolio inflows have been strong over the past twelve months with net inflows amounting to around $15 billion, and recent turbulence in markets has been accompanied by only small capital outflows from South Africa thus far. Part of the public sector borrowing requirement is expected to be financed by nonresidents through Eurobond issuance ($2 billion was raised in March 2010 and similar amounts are expected in the next two years), purchases of domestic securities, and multilateral loans for infrastructure.
2. The rising external debt ratio makes it somewhat more vulnerable to external shocks and rollover risk, although it looks manageable against a range of other shocks (Figure 1). The stress tests indicate that the largest adverse impact is from a 30 percent exchange rate depreciations or from a further widening of the non-interest current account deficit by 1.5 percentage points on average over the next five years. These shocks could respectively raise external debt to 47 percent and 43 percent by 2015. But these are likely to be upper bound estimates, since, for example, the exchange rate is likely to have a positive effect on export volumes which is not taken into account in the standard DSA. By contrast, a large (one standard deviation) permanent adverse shock to real GDP growth and the standard shock to interest rates have only a minor effect, while the combined shock has a moderate effect on external debt levels. Rollover risk was relatively comfortable in 2009, with reserves at 89 percent of the current account deficit plus short-term debt at remaining maturity, but the position becomes tighter in the medium term.
South Africa: External Debt Sustainability: Bound Tests 1/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2010, 296; 10.5089/9781455208791.002.A003
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and current account balance.3/ One-time real depreciation of 30 percent occurs in 2010.South Africa: External Debt Sustainability: Bound Tests 1/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2010, 296; 10.5089/9781455208791.002.A003
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and current account balance.3/ One-time real depreciation of 30 percent occurs in 2010.South Africa: External Debt Sustainability: Bound Tests 1/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2010, 296; 10.5089/9781455208791.002.A003
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and current account balance.3/ One-time real depreciation of 30 percent occurs in 2010.3. South Africa’s public debt position appears sustainable. Under the policies the medium-term expenditure framework outlined in the 2010/11 budget, the ratio of government debt to GDP is expected to rise over the short term, from 31 percent in 2009 to a maximum of 39 percent in 2012—of which, close to 4 percent of GDP is expected to be denominated in foreign currency—before declining gradually thereafter (Table 3). Gross financing needs surge to close to 9 percent of GDP in 2010, but will gradually decline afterwards to below 4 percent in the medium term (Figure 2). Total public debt is also projected to rise in the short term, as public enterprise borrow to help finance the accelerated investment expansion, but total public debt is projected to stabilize at close to 46 percent of GDP by 2012 (Table 3).
South Africa: External Debt Sustainability Framework, 2005-2015
(In percent of GDP, unless otherwise indicated)
Derived as [r - g -ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, ε= nominal appreciation (increase in dollar value of domestic currency), and α= share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock. ρ increases with an appreciating domestic currency (ε>0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels
South Africa: External Debt Sustainability Framework, 2005-2015
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Debt-stabilizing non-interest current account 6/ | ||||||
| Baseline: External debt | 18.7 | 21.8 | 26.3 | 25.9 | 27.5 | 26.5 | 28.2 | 29.9 | 31.8 | 33.6 | 35.2 | -6.0 | |||||
| Change in external debt | -1.8 | 3.2 | 4.5 | -0.4 | 1.6 | -1.0 | 1.7 | 1.7 | 1.9 | 1.8 | 1.7 | ||||||
| Identified external debt-creating flows (4+8+9) | -3.8 | 1.2 | 2.3 | 4.6 | -1.2 | 0.4 | 1.6 | 1.4 | 0.4 | 0.4 | 0.3 | ||||||
| Current account deficit, excluding interest payments | 2.4 | 3.9 | 5.7 | 5.4 | 2.4 | 3.0 | 4.7 | 4.9 | 5.1 | 5.2 | 5.2 | ||||||
| Deficit in balance of goods and services | 0.5 | 2.4 | 2.9 | 3.0 | 0.9 | 1.5 | 3.4 | 3.5 | 3.6 | 3.6 | 3.7 | ||||||
| Exports | 27.4 | 30.0 | 31.3 | 35.5 | 27.1 | 25.2 | 25.4 | 25.5 | 25.8 | 26.0 | 26.1 | ||||||
| Imports | 27.9 | 32.5 | 34.2 | 38.5 | 28.0 | 26.8 | 28.8 | 29.0 | 29.3 | 29.5 | 29.8 | ||||||
| Net non-debt creating capital inflows (negative) | -5.1 | -2.7 | -2.7 | -1.6 | -4.0 | -3.4 | -3.9 | -4.3 | -5.5 | -5.6 | -5.8 | ||||||
| Automatic debt dynamics 1/ | -1.2 | -0.1 | -0.7 | 0.8 | 0.4 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.9 | ||||||
| Contribution from nominal interest rate | 1.0 | 1.4 | 1.5 | 1.7 | 1.6 | 1.5 | 1.7 | 1.8 | 2.0 | 2.2 | 2.3 | ||||||
| Contribution from real GDP growth | -1.0 | -1.0 | -1.1 | -1.0 | 0.4 | -0.7 | -0.9 | -1.0 | -1.2 | -1.3 | -1.4 | ||||||
| Contribution from price and exchange rate changes 2/ | -1.2 | -0.5 | -1.1 | 0.1 | -1.6 | … | … | … | … | … | … | ||||||
| Residual, incl. change in gross foreign assets (2-3) 3/ | 2.0 | 2.0 | 2.2 | -4.9 | 2.8 | -1.4 | 0.1 | 0.3 | 1.4 | 1.3 | 1.3 | ||||||
| External debt-to-exports ratio (in percent) | 68.3 | 72.8 | 84.2 | 73.2 | 101.5 | 105.0 | 111.2 | 117.2 | 123.4 | 129.3 | 134.9 | ||||||
| Gross external financing need (in billions of US dollars) 4/ | 24.5 | 33.8 | 41.6 | 51.7 | 36.6 | 49.2 | 41.7 | 58.7 | 56.9 | 61.5 | 69.7 | ||||||
| in percent of GDP | 9.9 | 12.9 | 14.5 | 18.7 | 12.8 | 10-Year | 10-Year | 14.2 | 11.8 | 15.7 | 14.5 | 14.8 | 15.8 | ||||
| Scenario with key variables at their historical averages 5/ | 26.5 | 24.2 | 22.6 | 22.2 | 21.7 | 21.2 | -4.0 | ||||||||||
| Historical | Standard | ||||||||||||||||
| Key Macroeconomic Assumptions Underlying Baseline | Average | Deviation | |||||||||||||||
| Real GDP growth (in percent) | 5.3 | 5.6 | 5.5 | 3.7 | -1.8 | 3.6 | 2.2 | 3.2 | 3.6 | 3.9 | 4.2 | 4.4 | 4.5 | ||||
| GDP deflator in US dollars (change in percent) | 6.9 | 0.2 | 3.8 | -6.6 | 5.7 | 5.5 | 18.0 | 16.4 | -0.7 | 1.1 | 1.2 | 1.4 | 1.4 | ||||
| Nominal external interest rate (in percent) | 5.7 | 7.7 | 7.4 | 6.2 | 6.4 | 6.3 | 0.8 | 6.5 | 6.7 | 6.9 | 7.0 | 7.2 | 7.4 | ||||
| Growth of exports (US dollar terms, in percent) | 16.6 | 15.9 | 14.1 | 9.7 | -20.6 | 9.6 | 14.1 | 11.8 | 3.5 | 5.7 | 6.5 | 6.6 | 6.7 | ||||
| Growth of imports (US dollar terms, in percent) | 17.3 | 23.2 | 15.4 | 8.8 | -24.6 | 11.7 | 18.1 | 15.1 | 10.6 | 5.8 | 6.6 | 6.7 | 6.8 | ||||
| Current account balance, excluding interest payments | -2.4 | -3.9 | -5.7 | -5.4 | -2.4 | -1.6 | 3.0 | -3.0 | -4.7 | -4.9 | -5.1 | -5.2 | -5.2 | ||||
| Net non-debt creating capital inflows | 5.1 | 2.7 | 2.7 | 1.6 | 4.0 | 3.0 | 2.1 | 3.4 | 3.9 | 4.3 | 5.5 | 5.6 | 5.8 | ||||
Derived as [r - g -ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, ε= nominal appreciation (increase in dollar value of domestic currency), and α= share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock. ρ increases with an appreciating domestic currency (ε>0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels
South Africa: External Debt Sustainability Framework, 2005-2015
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Debt-stabilizing non-interest current account 6/ | ||||||
| Baseline: External debt | 18.7 | 21.8 | 26.3 | 25.9 | 27.5 | 26.5 | 28.2 | 29.9 | 31.8 | 33.6 | 35.2 | -6.0 | |||||
| Change in external debt | -1.8 | 3.2 | 4.5 | -0.4 | 1.6 | -1.0 | 1.7 | 1.7 | 1.9 | 1.8 | 1.7 | ||||||
| Identified external debt-creating flows (4+8+9) | -3.8 | 1.2 | 2.3 | 4.6 | -1.2 | 0.4 | 1.6 | 1.4 | 0.4 | 0.4 | 0.3 | ||||||
| Current account deficit, excluding interest payments | 2.4 | 3.9 | 5.7 | 5.4 | 2.4 | 3.0 | 4.7 | 4.9 | 5.1 | 5.2 | 5.2 | ||||||
| Deficit in balance of goods and services | 0.5 | 2.4 | 2.9 | 3.0 | 0.9 | 1.5 | 3.4 | 3.5 | 3.6 | 3.6 | 3.7 | ||||||
| Exports | 27.4 | 30.0 | 31.3 | 35.5 | 27.1 | 25.2 | 25.4 | 25.5 | 25.8 | 26.0 | 26.1 | ||||||
| Imports | 27.9 | 32.5 | 34.2 | 38.5 | 28.0 | 26.8 | 28.8 | 29.0 | 29.3 | 29.5 | 29.8 | ||||||
| Net non-debt creating capital inflows (negative) | -5.1 | -2.7 | -2.7 | -1.6 | -4.0 | -3.4 | -3.9 | -4.3 | -5.5 | -5.6 | -5.8 | ||||||
| Automatic debt dynamics 1/ | -1.2 | -0.1 | -0.7 | 0.8 | 0.4 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.9 | ||||||
| Contribution from nominal interest rate | 1.0 | 1.4 | 1.5 | 1.7 | 1.6 | 1.5 | 1.7 | 1.8 | 2.0 | 2.2 | 2.3 | ||||||
| Contribution from real GDP growth | -1.0 | -1.0 | -1.1 | -1.0 | 0.4 | -0.7 | -0.9 | -1.0 | -1.2 | -1.3 | -1.4 | ||||||
| Contribution from price and exchange rate changes 2/ | -1.2 | -0.5 | -1.1 | 0.1 | -1.6 | … | … | … | … | … | … | ||||||
| Residual, incl. change in gross foreign assets (2-3) 3/ | 2.0 | 2.0 | 2.2 | -4.9 | 2.8 | -1.4 | 0.1 | 0.3 | 1.4 | 1.3 | 1.3 | ||||||
| External debt-to-exports ratio (in percent) | 68.3 | 72.8 | 84.2 | 73.2 | 101.5 | 105.0 | 111.2 | 117.2 | 123.4 | 129.3 | 134.9 | ||||||
| Gross external financing need (in billions of US dollars) 4/ | 24.5 | 33.8 | 41.6 | 51.7 | 36.6 | 49.2 | 41.7 | 58.7 | 56.9 | 61.5 | 69.7 | ||||||
| in percent of GDP | 9.9 | 12.9 | 14.5 | 18.7 | 12.8 | 10-Year | 10-Year | 14.2 | 11.8 | 15.7 | 14.5 | 14.8 | 15.8 | ||||
| Scenario with key variables at their historical averages 5/ | 26.5 | 24.2 | 22.6 | 22.2 | 21.7 | 21.2 | -4.0 | ||||||||||
| Historical | Standard | ||||||||||||||||
| Key Macroeconomic Assumptions Underlying Baseline | Average | Deviation | |||||||||||||||
| Real GDP growth (in percent) | 5.3 | 5.6 | 5.5 | 3.7 | -1.8 | 3.6 | 2.2 | 3.2 | 3.6 | 3.9 | 4.2 | 4.4 | 4.5 | ||||
| GDP deflator in US dollars (change in percent) | 6.9 | 0.2 | 3.8 | -6.6 | 5.7 | 5.5 | 18.0 | 16.4 | -0.7 | 1.1 | 1.2 | 1.4 | 1.4 | ||||
| Nominal external interest rate (in percent) | 5.7 | 7.7 | 7.4 | 6.2 | 6.4 | 6.3 | 0.8 | 6.5 | 6.7 | 6.9 | 7.0 | 7.2 | 7.4 | ||||
| Growth of exports (US dollar terms, in percent) | 16.6 | 15.9 | 14.1 | 9.7 | -20.6 | 9.6 | 14.1 | 11.8 | 3.5 | 5.7 | 6.5 | 6.6 | 6.7 | ||||
| Growth of imports (US dollar terms, in percent) | 17.3 | 23.2 | 15.4 | 8.8 | -24.6 | 11.7 | 18.1 | 15.1 | 10.6 | 5.8 | 6.6 | 6.7 | 6.8 | ||||
| Current account balance, excluding interest payments | -2.4 | -3.9 | -5.7 | -5.4 | -2.4 | -1.6 | 3.0 | -3.0 | -4.7 | -4.9 | -5.1 | -5.2 | -5.2 | ||||
| Net non-debt creating capital inflows | 5.1 | 2.7 | 2.7 | 1.6 | 4.0 | 3.0 | 2.1 | 3.4 | 3.9 | 4.3 | 5.5 | 5.6 | 5.8 | ||||
Derived as [r - g -ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, ε= nominal appreciation (increase in dollar value of domestic currency), and α= share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock. ρ increases with an appreciating domestic currency (ε>0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels
South Africa: External Sustainability Framework--Gross External Financing Need, 2005-2015
Defined as non-interest current account deficit, plus interest and amortization on medium- and long-term debt, plus short-term debt at end of previous period.
Gross external financing under the stress-test scenarios is derived by assuming the same ratio of short-term to total debt as in the baseline scenario and the same average maturity on medium- and long term debt. Interest expenditures are derived by applying the respective interest rate to the previous period debt stock under each alternative scenario.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
The implied change in other key variables under this scenario is discussed in the text.
South Africa: External Sustainability Framework--Gross External Financing Need, 2005-2015
| Actual | Projections | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | ||
| I. Baseline Projections | ||||||||||||
| Gross external financing need in billions of U.S. dollars 1/ | 24.5 | 33.8 | 41.6 | 51.7 | 36.6 | 49.2 | 41.7 | 58.7 | 56.9 | 61.5 | 69.7 | |
| in percent of GDP | 9.9 | 12.9 | 14.5 | 18.7 | 12.8 | 14.2 | 11.8 | 15.7 | 14.5 | 14.8 | 15.8 | |
| II. Stress Tests | ||||||||||||
| Gross external financing need in billions of U.S. dollars 2/ | ||||||||||||
| A. Alternative Scenarios | ||||||||||||
| A1. Key variables are at their historical averages in 2010-2015 3/ | 49.2 | 30.1 | 42.1 | 36.6 | 38.5 | 42.8 | ||||||
| B. Bound Tests | ||||||||||||
| B1. Nominal interest rate is at baseline plus one-half standard deviations | 49.2 | 42.1 | 59.2 | 57.5 | 62.3 | 70.8 | ||||||
| B2. Real GDP growth is at baseline minus one-half standard deviations | 49.2 | 41.5 | 58.2 | 56.0 | 60.2 | 67.8 | ||||||
| B3. Non-interest current account is at baseline minus one-half standard deviations | 49.2 | 47.3 | 66.9 | 66.7 | 73.5 | 84.8 | ||||||
| B4. Combination of B1-B3 using 1/4 standard deviation shocks | 49.2 | 44.6 | 62.8 | 61.7 | 67.2 | 76.7 | ||||||
| B5. One time 30 percent real depreciation in 2011 | 49.2 | 41.2 | 53.3 | 52.3 | 56.8 | 64.6 | ||||||
| Gross external financing need in percent of GDP 2/ | ||||||||||||
| A. Alternative Scenarios | ||||||||||||
| A1. Key variables are at their historical averages in 2010-2015 3/ | 14.2 | 8.0 | 10.2 | 8.1 | 7.8 | 7.9 | ||||||
| B. Bound Tests | ||||||||||||
| B1. Nominal interest rate is at baseline plus one-half standard deviations | 14.2 | 11.9 | 15.9 | 14.6 | 15.0 | 16.0 | ||||||
| B2. Real GDP growth is at baseline minus one-half standard deviations | 14.2 | 11.8 | 15.9 | 14.7 | 15.1 | 16.2 | ||||||
| B3. Non-interest current account is at baseline minus one-half standard deviations | 14.2 | 13.3 | 17.9 | 17.0 | 17.7 | 19.2 | ||||||
| B4. Combination of B1-B4 using 1/4 standard deviation shocks | 14.2 | 12.6 | 17.0 | 15.9 | 16.5 | 17.8 | ||||||
| B5. One time 30 percent real depreciation in 2011 | 14.2 | 17.1 | 21.1 | 19.6 | 20.1 | 21.6 | ||||||
Defined as non-interest current account deficit, plus interest and amortization on medium- and long-term debt, plus short-term debt at end of previous period.
Gross external financing under the stress-test scenarios is derived by assuming the same ratio of short-term to total debt as in the baseline scenario and the same average maturity on medium- and long term debt. Interest expenditures are derived by applying the respective interest rate to the previous period debt stock under each alternative scenario.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
The implied change in other key variables under this scenario is discussed in the text.
South Africa: External Sustainability Framework--Gross External Financing Need, 2005-2015
| Actual | Projections | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | ||
| I. Baseline Projections | ||||||||||||
| Gross external financing need in billions of U.S. dollars 1/ | 24.5 | 33.8 | 41.6 | 51.7 | 36.6 | 49.2 | 41.7 | 58.7 | 56.9 | 61.5 | 69.7 | |
| in percent of GDP | 9.9 | 12.9 | 14.5 | 18.7 | 12.8 | 14.2 | 11.8 | 15.7 | 14.5 | 14.8 | 15.8 | |
| II. Stress Tests | ||||||||||||
| Gross external financing need in billions of U.S. dollars 2/ | ||||||||||||
| A. Alternative Scenarios | ||||||||||||
| A1. Key variables are at their historical averages in 2010-2015 3/ | 49.2 | 30.1 | 42.1 | 36.6 | 38.5 | 42.8 | ||||||
| B. Bound Tests | ||||||||||||
| B1. Nominal interest rate is at baseline plus one-half standard deviations | 49.2 | 42.1 | 59.2 | 57.5 | 62.3 | 70.8 | ||||||
| B2. Real GDP growth is at baseline minus one-half standard deviations | 49.2 | 41.5 | 58.2 | 56.0 | 60.2 | 67.8 | ||||||
| B3. Non-interest current account is at baseline minus one-half standard deviations | 49.2 | 47.3 | 66.9 | 66.7 | 73.5 | 84.8 | ||||||
| B4. Combination of B1-B3 using 1/4 standard deviation shocks | 49.2 | 44.6 | 62.8 | 61.7 | 67.2 | 76.7 | ||||||
| B5. One time 30 percent real depreciation in 2011 | 49.2 | 41.2 | 53.3 | 52.3 | 56.8 | 64.6 | ||||||
| Gross external financing need in percent of GDP 2/ | ||||||||||||
| A. Alternative Scenarios | ||||||||||||
| A1. Key variables are at their historical averages in 2010-2015 3/ | 14.2 | 8.0 | 10.2 | 8.1 | 7.8 | 7.9 | ||||||
| B. Bound Tests | ||||||||||||
| B1. Nominal interest rate is at baseline plus one-half standard deviations | 14.2 | 11.9 | 15.9 | 14.6 | 15.0 | 16.0 | ||||||
| B2. Real GDP growth is at baseline minus one-half standard deviations | 14.2 | 11.8 | 15.9 | 14.7 | 15.1 | 16.2 | ||||||
| B3. Non-interest current account is at baseline minus one-half standard deviations | 14.2 | 13.3 | 17.9 | 17.0 | 17.7 | 19.2 | ||||||
| B4. Combination of B1-B4 using 1/4 standard deviation shocks | 14.2 | 12.6 | 17.0 | 15.9 | 16.5 | 17.8 | ||||||
| B5. One time 30 percent real depreciation in 2011 | 14.2 | 17.1 | 21.1 | 19.6 | 20.1 | 21.6 | ||||||
Defined as non-interest current account deficit, plus interest and amortization on medium- and long-term debt, plus short-term debt at end of previous period.
Gross external financing under the stress-test scenarios is derived by assuming the same ratio of short-term to total debt as in the baseline scenario and the same average maturity on medium- and long term debt. Interest expenditures are derived by applying the respective interest rate to the previous period debt stock under each alternative scenario.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
The implied change in other key variables under this scenario is discussed in the text.
South Africa: Public Sector Debt Sustainability Framework, 2007-15
(In percent of GDP, unless otherwise indicated)
Includes the central government, and provincial and local government activities financed with transfers from the central government.
Derived as [(r - ρ(1+g) - g + ae(1+r)]/(1+g+ρ+gρ)) times previous period debt ratio, with r = interest rate; ρ = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.
The exchange rate contribution is derived from the numerator in footnote 2/ as αε(l+r).
For projections, this line includes exchange rate changes.
Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.
Derived as nominal interest expenditure divided by previous period debt stock.
Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
South Africa: Public Sector Debt Sustainability Framework, 2007-15
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Debt-stabilizing primary balance 9/ | ||||
| Baseline: Public sector debt 1/ | 28.3 | 27.2 | 30.8 | 34.8 | 37.7 | 39.1 | 38.8 | 37.8 | 34.8 | -0.6 | |||
| o/w foreign-currency denominated | 3.8 | 4.3 | 3.9 | 3.8 | 3.8 | 3.8 | 3.9 | 3.9 | 3.1 | ||||
| Change in public sector debt | -4.3 | -1.1 | 3.7 | 4.0 | 2.9 | 1.4 | -0.3 | -1.1 | -3.0 | ||||
| Identified debt-creating flows (4+7+12) | -6.6 | -3.8 | -0.4 | -0.6 | -1.9 | -3.6 | -5.4 | -6.4 | -7.3 | ||||
| Primary deficit | -5.1 | -4.3 | -0.5 | -0.3 | -1.5 | -3.1 | -4.6 | -5.6 | -6.5 | ||||
| Revenue and grants | 28.4 | 29.4 | 27.5 | 27.2 | 27.8 | 28.3 | 28.9 | 29.5 | 30.1 | ||||
| Primary (noninterest) expenditure | 23.3 | 25.1 | 27.0 | 26.9 | 26.3 | 25.2 | 24.3 | 24.0 | 23.6 | ||||
| Automatic debt dynamics 2/ | -1.5 | 0.6 | 0.0 | -0.2 | -0.4 | -0.5 | -0.8 | -0.8 | -0.8 | ||||
| Contribution from interest rate/growth differential 3/ | -1.4 | -0.8 | 0.9 | -0.2 | -0.4 | -0.5 | -0.8 | -0.8 | -0.8 | ||||
| Of which contribution from real interest rate | 0.2 | 0.1 | 0.5 | 0.7 | 0.7 | 0.8 | 0.7 | 0.7 | 0.7 | ||||
| Of which contribution from real GDP growth | -1.6 | -0.9 | 0.5 | -0.9 | -1.1 | -1.3 | -1.5 | -1.5 | -1.5 | ||||
| Contribution from exchange rate depreciation 4/ | -0.1 | 1.3 | -0.9 | … | … | … | … | … | … | ||||
| Other identified debt-creating flows | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Privatization receipts (negative) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Recognition of implicit or contingent liabilities | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Other (specify, e.g. bank recapitalization) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Residual, including asset changes (2-3) 5/ | 2.2 | 2.7 | 4.1 | 4.6 | 4.8 | 5.0 | 5.1 | 5.3 | 4.3 | ||||
| Public sector debt-to-revenue ratio 1/ | 99.6 | 92.4 | 112.1 | 128.1 | 136.0 | 138.2 | 134.3 | 128.0 | 115.5 | ||||
| Gross financing need 6/ | 2.5 | 3.5 | 8.3 | 8.7 | 7.3 | 5.8 | 4.1 | 3.5 | 3.2 | ||||
| in billions of U.S. dollars | 7.0 | 9.7 | 23.9 | 29.9 | 25.9 | 21.8 | 16.1 | 14.7 | 14.2 | ||||
| Scenario with key variables at their historical averages 7/ | 34.8 | 35.3 | 36.0 | 36.7 | 37.7 | 37.8 | -0.2 | ||||||
| Scenario with no policy change (constant primary balance) in 2010-2015 | 34.8 | 38.3 | 42.4 | 46.3 | 50.3 | 53.3 | -0.9 | ||||||
| Key Macroeconomic and Fiscal Assumptions Underlying Baseline | |||||||||||||
| Real GDP growth (in percent) | 5.5 | 3.7 | -1.8 | 3.2 | 3.6 | 3.9 | 4.2 | 4.4 | 4.5 | ||||
| Average nominal interest rate on public debt (in percent) 8/ | 9.2 | 10.1 | 9.8 | 9.8 | 9.7 | 9.6 | 9.0 | 8.8 | 8.6 | ||||
| Average real interest rate (nominal rate minus change in GDP deflator, in p | 1.0 | 0.9 | 1.7 | 2.6 | 2.6 | 2.6 | 2.2 | 2.3 | 2.4 | ||||
| Nominal appreciation (increase in US dollar value of local currency, in perc | 2.3 | -26.8 | 26.1 | … | … | … | … | … | … | ||||
| Inflation rate (GDP deflator, in percent) | 8.2 | 9.2 | 8.0 | 7.2 | 7.2 | 7.0 | 6.8 | 6.5 | 6.2 | ||||
| Growth of real primary spending (deflated by GDP deflator, in percent) | 8.1 | 11.5 | 5.9 | 2.6 | 1.3 | -0.2 | 0.5 | 2.8 | 2.8 | ||||
| Primary deficit | -5.1 | -4.3 | -0.5 | -0.3 | -1.5 | -3.1 | -4.6 | -5.6 | -6.5 | ||||
| Memorandum items: | |||||||||||||
| Debt of nonfinancial public enterprises | 1.5 | 1.3 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | ||||
| Debt of local governments and local enterprises | 4.9 | 5.5 | 5.7 | 5.6 | 5.5 | 5.3 | 5.1 | 4.9 | 4.7 | ||||
| Gross public sector debt | 34.6 | 34.0 | 37.9 | 41.9 | 44.6 | 45.8 | 45.3 | 44.0 | 40.8 | ||||
Includes the central government, and provincial and local government activities financed with transfers from the central government.
Derived as [(r - ρ(1+g) - g + ae(1+r)]/(1+g+ρ+gρ)) times previous period debt ratio, with r = interest rate; ρ = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.
The exchange rate contribution is derived from the numerator in footnote 2/ as αε(l+r).
For projections, this line includes exchange rate changes.
Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.
Derived as nominal interest expenditure divided by previous period debt stock.
Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
South Africa: Public Sector Debt Sustainability Framework, 2007-15
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Debt-stabilizing primary balance 9/ | ||||
| Baseline: Public sector debt 1/ | 28.3 | 27.2 | 30.8 | 34.8 | 37.7 | 39.1 | 38.8 | 37.8 | 34.8 | -0.6 | |||
| o/w foreign-currency denominated | 3.8 | 4.3 | 3.9 | 3.8 | 3.8 | 3.8 | 3.9 | 3.9 | 3.1 | ||||
| Change in public sector debt | -4.3 | -1.1 | 3.7 | 4.0 | 2.9 | 1.4 | -0.3 | -1.1 | -3.0 | ||||
| Identified debt-creating flows (4+7+12) | -6.6 | -3.8 | -0.4 | -0.6 | -1.9 | -3.6 | -5.4 | -6.4 | -7.3 | ||||
| Primary deficit | -5.1 | -4.3 | -0.5 | -0.3 | -1.5 | -3.1 | -4.6 | -5.6 | -6.5 | ||||
| Revenue and grants | 28.4 | 29.4 | 27.5 | 27.2 | 27.8 | 28.3 | 28.9 | 29.5 | 30.1 | ||||
| Primary (noninterest) expenditure | 23.3 | 25.1 | 27.0 | 26.9 | 26.3 | 25.2 | 24.3 | 24.0 | 23.6 | ||||
| Automatic debt dynamics 2/ | -1.5 | 0.6 | 0.0 | -0.2 | -0.4 | -0.5 | -0.8 | -0.8 | -0.8 | ||||
| Contribution from interest rate/growth differential 3/ | -1.4 | -0.8 | 0.9 | -0.2 | -0.4 | -0.5 | -0.8 | -0.8 | -0.8 | ||||
| Of which contribution from real interest rate | 0.2 | 0.1 | 0.5 | 0.7 | 0.7 | 0.8 | 0.7 | 0.7 | 0.7 | ||||
| Of which contribution from real GDP growth | -1.6 | -0.9 | 0.5 | -0.9 | -1.1 | -1.3 | -1.5 | -1.5 | -1.5 | ||||
| Contribution from exchange rate depreciation 4/ | -0.1 | 1.3 | -0.9 | … | … | … | … | … | … | ||||
| Other identified debt-creating flows | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Privatization receipts (negative) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Recognition of implicit or contingent liabilities | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Other (specify, e.g. bank recapitalization) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||
| Residual, including asset changes (2-3) 5/ | 2.2 | 2.7 | 4.1 | 4.6 | 4.8 | 5.0 | 5.1 | 5.3 | 4.3 | ||||
| Public sector debt-to-revenue ratio 1/ | 99.6 | 92.4 | 112.1 | 128.1 | 136.0 | 138.2 | 134.3 | 128.0 | 115.5 | ||||
| Gross financing need 6/ | 2.5 | 3.5 | 8.3 | 8.7 | 7.3 | 5.8 | 4.1 | 3.5 | 3.2 | ||||
| in billions of U.S. dollars | 7.0 | 9.7 | 23.9 | 29.9 | 25.9 | 21.8 | 16.1 | 14.7 | 14.2 | ||||
| Scenario with key variables at their historical averages 7/ | 34.8 | 35.3 | 36.0 | 36.7 | 37.7 | 37.8 | -0.2 | ||||||
| Scenario with no policy change (constant primary balance) in 2010-2015 | 34.8 | 38.3 | 42.4 | 46.3 | 50.3 | 53.3 | -0.9 | ||||||
| Key Macroeconomic and Fiscal Assumptions Underlying Baseline | |||||||||||||
| Real GDP growth (in percent) | 5.5 | 3.7 | -1.8 | 3.2 | 3.6 | 3.9 | 4.2 | 4.4 | 4.5 | ||||
| Average nominal interest rate on public debt (in percent) 8/ | 9.2 | 10.1 | 9.8 | 9.8 | 9.7 | 9.6 | 9.0 | 8.8 | 8.6 | ||||
| Average real interest rate (nominal rate minus change in GDP deflator, in p | 1.0 | 0.9 | 1.7 | 2.6 | 2.6 | 2.6 | 2.2 | 2.3 | 2.4 | ||||
| Nominal appreciation (increase in US dollar value of local currency, in perc | 2.3 | -26.8 | 26.1 | … | … | … | … | … | … | ||||
| Inflation rate (GDP deflator, in percent) | 8.2 | 9.2 | 8.0 | 7.2 | 7.2 | 7.0 | 6.8 | 6.5 | 6.2 | ||||
| Growth of real primary spending (deflated by GDP deflator, in percent) | 8.1 | 11.5 | 5.9 | 2.6 | 1.3 | -0.2 | 0.5 | 2.8 | 2.8 | ||||
| Primary deficit | -5.1 | -4.3 | -0.5 | -0.3 | -1.5 | -3.1 | -4.6 | -5.6 | -6.5 | ||||
| Memorandum items: | |||||||||||||
| Debt of nonfinancial public enterprises | 1.5 | 1.3 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | ||||
| Debt of local governments and local enterprises | 4.9 | 5.5 | 5.7 | 5.6 | 5.5 | 5.3 | 5.1 | 4.9 | 4.7 | ||||
| Gross public sector debt | 34.6 | 34.0 | 37.9 | 41.9 | 44.6 | 45.8 | 45.3 | 44.0 | 40.8 | ||||
Includes the central government, and provincial and local government activities financed with transfers from the central government.
Derived as [(r - ρ(1+g) - g + ae(1+r)]/(1+g+ρ+gρ)) times previous period debt ratio, with r = interest rate; ρ = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.
The exchange rate contribution is derived from the numerator in footnote 2/ as αε(l+r).
For projections, this line includes exchange rate changes.
Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.
Derived as nominal interest expenditure divided by previous period debt stock.
Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
South Africa: Public Debt Sustainability: Bound Tests 1/
(Public debt in percent of GDP)
Citation: IMF Staff Country Reports 2010, 296; 10.5089/9781455208791.002.A003
Sources: International Monetary Fund, country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and primary balance.3/ One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2010, with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).South Africa: Public Debt Sustainability: Bound Tests 1/
(Public debt in percent of GDP)
Citation: IMF Staff Country Reports 2010, 296; 10.5089/9781455208791.002.A003
Sources: International Monetary Fund, country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and primary balance.3/ One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2010, with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).South Africa: Public Debt Sustainability: Bound Tests 1/
(Public debt in percent of GDP)
Citation: IMF Staff Country Reports 2010, 296; 10.5089/9781455208791.002.A003
Sources: International Monetary Fund, country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and primary balance.3/ One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2010, with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).4. The ratio of government debt-to-GDP ratio appears broadly robust to a variety of shocks, including weaker GDP growth, a lower primary balance, a 30 percent real depreciation of the exchange rate, and a 10 percent increase in the debt stock (Figure 2). Under most of these scenarios, the government debt ratio rises above the baseline over the projection period by only modest margins. The only exception is in the case of the “no policy change” scenario where the debt ratio rises sharply and exceeds 50 percent of GDP at the end of projection period, mainly owing to the recent sharp deterioration in fiscal balance.
