News24
03 May 2021, 23:42 GMT+10
For the second time in more than a month, the South African government cut the size of its bonds on auction.
This is thanks to better-than-expected tax income, which means it doesn't have to rely as much on new debt as was previously expected.
On Monday, National Treasury announced that it will reduce its weekly auction of fixed-rate government bonds by R900 million - from R4.8 billion to R3.9 billion, starting from next week. It will continue to auction R1.2 billion in inflation-linked bonds.
At the end of March, government also substantially reduced its bonds on auction.
In a statement, Treasury said that the preliminary numbers for the past year showed a "gross borrowing requirement that is lower than the revised budget".
This is thanks to tax collections being higher than expected. While the pandemic, as well as sales bans on alcohol and cigarettes, hit South Africa's tax income, large windfalls in mining royalties helped to bolster government income. In the end, SARS collected "only" 10% less in tax in the past year than in 2019 - against government's previous forecast that it would be 18% less.
The stronger-than-expected tax income means that while South Africa's debt has ballooned during the pandemic - gross borrowing increased from R433 billion to R670 billion, with a fifth of all tax income now paid to its creditors - government does not need to issue as many bonds as previously expected.
Bonds are in effect IOUs, which pay regular interest payments. The full amount is paid back after a specific number of years.
"Revenue numbers have been looking better than expected but we did not expect it this soon," says Nishan Maharaj, head of fixed interest investment at Coronation Fund Managers of the decision to reduce the bond size for the second time since end-March. "It is encouraging that Treasury is using any revenue overrun or underspending to reduce the borrowing requirement rather than spend more."
Given the solid interest rates offered by South African government bonds, there are usually strong demand for local bonds at the weekly auctions.
But recently, demand has been under pressure amid soaring yields on US government bonds - making local bonds less appealing.
Get a daily dose of Asia Pacific Star news through our daily email, its complimentary and keeps you fully up to date with world and business news as well.
Publish news of your business, community or sports group, personnel appointments, major event and more by submitting a news release to Asia Pacific Star.
More InformationDHARAMSHALA, India: The Dalai Lama turned 90 on July 6, celebrated by thousands of followers in the Himalayan town of Dharamshala,...
HONG KONG: China has fired back at the European Union in an escalating trade dispute by imposing new restrictions on medical device...
Chinese FM calls for joint efforts in finding right way for China, U.S. to get along China and the United States should work together...
New Delhi [India], July 12 (ANI): In a remarkable decision taken at the 47th Session of the World Heritage Committee, India's official...
How the Wests recklessness is testing Moscows nuclear patience A multipolar world is, by its nature, a nuclear one. Its conflicts...
The Hague [Netherlands], July 11 (ANI): Italy made history after securing qualification for the 2026 Men's T20 World Cup in India and...
WASHINGTON, D.C.: A federal rule designed to make it easier for Americans to cancel subscriptions has been blocked by a U.S. appeals...
BASTROP, Texas: In a surprising turn at Elon Musk's X platform, CEO Linda Yaccarino announced she is stepping down, just months after...
NEW YORK CITY, New York: Former British prime minister Rishi Sunak will return to Goldman Sachs in an advisory role, the Wall Street...
LONDON, U.K.: Physically backed gold exchange-traded funds recorded their most significant semi-annual inflow since the first half...
AMSTERDAM, Netherlands: Some 32 percent of global semiconductor production could face climate change-related copper supply disruptions...
NEW YORK, New York - U.S. stocks rebounded Tuesday with all the major indices gaining ground. Markets in the UK, Europe and Canada...