South Africa May Sell 63 Percent More Bonds
Coronation Fund Managers Ltd. has announced that South Africa may be forced to sell 63 percent more bonds than it had originally planned to make up for falling revenue caused by the global recession. The government may need to raise 100 billion rand ($12.8 billion) in the domestic market in the 2009-2010 fiscal year to cover spending. The budget deficit may increase to 6 percent of GDP compared with a government forecast of 3.8 percent, according to Mark le Roux, head of fixed income and Coronation. Declining economic growth is putting more pressure on the government. Finance Minister Pravin Gordhan said that most of South Africa’s borrowing needs will be “met domestically”.
Increased debt issuance will “weigh heavily” on longer-dated South African bonds. The increase in supply of securities will drive down prices and pushes yields higher, according to Le Roux. Bonds that mature in four to five years might gain as South Africa’s inflation rate falls within the central bank’s 3 percent to 6 percent target by the end of March 2010.
South Africa may be forced to sell 63 percent more bonds than it originally planned this year to make up for falling revenue caused by the economy's first recession in 17 years, Coronation Fund Managers Ltd. said.
The government may need to raise 100 billion rand ($12.8 billion) in the domestic market in the 2009-10 fiscal year to cover spending, compared with a forecast of 61.5 billion rand outlined in its February budget, according to Mark le Roux<a onmouseover="return escape( popwSearchNews( this ))" href="http://search.bloomberg.com/search?q=Mark+le+Roux&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1">, head of fixed income at Coronation. The budget deficit may swell to 6 percent of gross domestic product, compared with a government forecast of 3.8 percent, he said.
“Tax revenue is falling off a cliff so what does one do other than go to the bond market?” Le Roux, who helps manage almost $20 billion in assets at Coronation, said at a presentation in Johannesburg today. Declining economic growth in South Africa is placing “significant funding pressure” on the government, he said.
The government may miss its revenue collection target by as much as 60 billion rand this year as the recession reduces tax receipts, Finance Minister Pravin Gordhan said July 1. Most of South Africa’s borrowing needs will be “met domestically,” Gordhan said July 8.
South Africa plans to provide revised forecasts for domestic debt issuance in the current fiscal year on Oct. 27, when it presents its medium-term budget policy statement to parliament, Treasury Spokeswoman Thoraya Pandy said by telephone from Pretoria.
Increased debt issuance will “weigh heavily” on longer- dated South African bonds as the likelihood of increased supply of the securities drives down prices and pushes yields higher, said Le Roux. Bonds maturing in “the four to five-year space” may gain as South Africa’s inflation rate falls within the central bank’s 3 percent to 6 percent target by the end of March next year, he said.
Slowing inflation may allow the South African Reserve Bank, which has cut its benchmark interest rate by 4.50 percentage points since December to a three-year low of 7.5 percent, to reduce the rate by a further half point this year, according to Coronation’s forecasts. Headline inflation may ease to 6.1 percent by the end of August, the Cape Town-based money manager expects. The inflation rate was 6.9 percent in June, the government said July 29.
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