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S.Africa to cut debt further in 2007-finmin

South Africa will seek to further reduce its short term debt this year after a successful debt exchange that achieved the country's lowest interest rate in the dollar market, Finance Minister Trevor Manuel said on Thursday.
/ Source: Reuters

South Africa will seek to further reduce its short term debt this year after a successful debt exchange that achieved the country's lowest interest rate in the dollar market, Finance Minister Trevor Manuel said on Thursday.

"In the coming year further reductions in short-term debt will be sought, as part of a broader strategy aimed at lowering annual debt costs and providing appropriate protection against financial shocks," he said in a speech to parliament.

South Africa issued a $1 billion 15-year global bond and retired short-term paper last week in a debt exchange the Treasury says will save it $46.7 million a year.

As part of the transaction, South Africa repurchased an equivalent $1.217 billion worth of old dollar-denominated bonds maturing in 2009 and 2017 and euro-denominated notes due 2008.

The new 5.875 percent coupon bond, to mature May 30, 2022, was priced at 99.635 to yield 5.912 percent, or 120 basis points over 10-year U.S. treasuries -- the lowest rate the country has ever achieved in the dollar market.

Treasury head Lesetja Kganyago told Reuters the aim of the exchange was to reduce the country's vulnerability to external shocks by switching short-term debt into longer-term paper.

Manuel said on Thursday South Africa's cost of borrowing had been significantly reduced through sound fiscal management that had contributed to a steady improvement in South Africa's financial standing.

Tight control of government finances and efficient tax collection have repeatedly led to overruns in tax revenues, and a budget surplus of 0.6 percent of gross domestic product for the 2006/07 financial year, reducing the need for new financing.

Economic growth has accelerated and credit ratings have improved over the past decade, although a swelling current account deficit -- which reached 7.8 percent of GDP in the fourth quarter of 2006 -- has been raised as a concern.

However, Manuel played down worries over the balance of payments, saying in reply to debate on his speech that in a world of huge global imbalances, there was no clear stance on what constituted an appropriate current account balance.

"We shouldn't try and suggest that the problems are insurmountable when they actually aren't," he said.

Manuel repeated an announcement made in his annual budget in February that the Treasury would not need to raise additional finance in international capital markets over the next two years.

"However, active foreign debt management remains an integral part of our financing strategy," he said.