Low dollar-debt shields SA from weak rand, Nene says

South Africa’s low dollar debt levels are helping to shield government finances from a weakening rand, Finance Minister Nhlanhla Nene said.

“Our debt is mainly rand-denominated, only a very small percentage of our debt is dollar-denominated,” Nene said in an interview in Johannesburg on Thursday. “So it does have an impact, but it’s not as bad as it would’ve been if we were exposed beyond where we are.”

Nene, 56, is under pressure to keep debt under control to ward off the threat of a credit-rating downgrade as economic growth slows. His job is being complicated by the rand’s plunge to an all-time low of 14.0682 per dollar on August 24 amid an emerging-market rout triggered by a slowdown in China and a slump in commodity prices.

In February, Nene said debt-service costs would reach 10.1% of total government spending this fiscal year, up from 9.6% in the previous year. The government is targeting a budget deficit of 3.9% of gross domestic product for the year through March 2016, with net debt projected to rise to 42.5% of GDP. Foreign-currency debt makes up less than 10% of the total.

Lungisa Fuzile, director general of the national treasury, said the guideline is to keep foreign debt at 20% to 25% of total liabilities. While that gives the government “a lot of headroom” to borrow on international markets, there’s no immediate pressure to sell dollar debt, he told reporters in Johannesburg. The government penciled in a $1-billion global bond this year, he said.

“We have been very restrained, some people might even say conservative, insofar as our foreign hard currency denominated debt,” he said. “If the market presents an opportunity, we would raise. But we don’t have terrible pressure because we’ve got a fair amount of foreign currency deposits which can cushion us.”

The rand’s 11.4% slide against the dollar this year is a response to global economic conditions and in line with the performance of other emerging-market currencies, Nene said.

“It’s the normal thing, if you have a floating exchange rate, this would be the response,” he said. “We consider it a temporary move.”

The rand traded 0.3% stronger at 13.0876 per dollar as of 1pm in Johannesburg. Yields on rand-denominated government bonds due December 2026 fell six basis points to 8.36%.

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Rene Vollgraaff
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