The expected South African government foreign loan will help to build foreign reserves, South African Reserve Bank (SARB) Governor Tito Mboweni said on Thursday.
Speaking at the Euromoney conference on South Africa Ten Years on: Empowerment, Finance, Trade and Investment in Cape Town, Mboweni said the foreign loan will allow the SARB to “increase its foreign reserves further in a gradual manner whenever the underlying circumstances allow it to do so”.
In the past the SARB has “captured” large-scale foreign capital inflows such as from the government’s foreign loan programme, as well as other inflows deemed to be permanent such as the Old Mutual listing proceeds in London, and more recently the purchase by Russian company Norilsk Nickel of Anglo American’s stake in Gold Fields.
JP Morgan and Barclays have been mandated to launch a foreign loan for the South African government and the roadshow to launch the bond is expected shortly.
Mboweni noted that the refusal of foreign creditors to roll over the short-term credit facilities of domestic borrowers led to a shortage of foreign exchange and a confidence crisis in 1985.
Despite the 1985 debt standstill on the repayment of foreign debt, capital continued to flow out of the country. The gold and other foreign reserves of the country remained at low levels and domestic savings had to be used to finance the withdrawal of capital.
“After years of isolation, the South African government established itself again as a credible borrower in the international capital markets. This is reflected in the upgraded credit ratings received from international rating agencies since 1994 and the continued interest in investing in bond issues of the national government.
“However, the government has maintained its foreign debt well within appropriate levels. At the end of December 2003 the foreign debt of the national government amounted to only 6% of gross domestic product,” Mboweni said. — I-Net Bridge