South Africa’s government has run out of money

South Africa’s government is no longer able to simply borrow more money to afford its ambitious spending programmes, with the National Treasury’s policy of fiscal consolidation beginning to bear fruit. 

The state cannot afford to take on additional debt as the economy cannot sustain its current debt burden, which has crossed 76% as a share of GDP. 

South Africa’s government already spends R1.2 billion a day to service its debt load, crowding out expenditure in other areas of the economy. 

The government’s poor financial health is a result of lacklustre economic growth over the past decade, which has been coupled with increased government spending on consumption rather than production. 

Now, faced with deteriorating infrastructure, the government does not have the funds to adequately invest in large-scale maintenance and expansion programmes. 

This will force it to tap the private sector’s cash to fund infrastructure maintenance and upgrades in the coming decade, Stanlib chief economist Kevin Lings said. 

Lings, speaking at the 2025 Morningstar Investment Conference, explained that the South African government no longer has any space to increase its borrowing. 

This is one of the main things that has gone wrong in South Africa, with the state’s deteriorating financial health translating into declining credit ratings, plunging investment, and a stagnant economy. 

Lings explained that is clear the government cannot borrow anymore money and that it is aware of this, otherwise it would not have tried to increase VAT earlier this year. 

“The government tried to increase the VAT rate recently. Why did they go with the VAT increase and not simply borrow more money? Because they recognised borrowing more money would be worse,” Lings said. 

“Our debt level has gone from 26% 15 years ago to a remarkable 76% of GDP. If you go any higher, you are going to bankrupt South Africa. This is dangerous territory.” 

South Africa’s debt burden has become unsustainable, with debt-servicing costs already being unaffordable in a stagnant economy. 

“Now you have to think about your major problem. You have weak, failing infrastructure, and you have no money. You have run out of money. The government has run out of money.” 

“How are you going to fix the infrastructure? It is not like you can go borrow money and say, ‘Oh no, it is fine because I am building something with this money. I am not having a party.’ No, you are still borrowing the money.”

South Africa heading for serious financial trouble

A symbol of the unsustainability of South Africa’s debt burden is that the interest the government pays on its debt is higher than nominal GDP growth. 

Currently, South Africa pays just under 10% interest on its government debt, while its economy has averaged nominal growth of around 5% for the past decade. 

This equation renders increased borrowing unsustainable since debt compounds faster than the income needed to service it.

This is at the core of South Africa’s fiscal challenge, as debt-servicing costs are the fastest-growing expenditure item in the budget, with the government spending over R1.2 billion a day on interest payments. 

Reserve Bank Governor Lesetja Kganyago warned of this looming financial disaster in a recent speech to the National School of Government. 

Kganyago warned that if the government begins to borrow more money to only pay interest on existing debt, the country opens itself up to a debt spiral. 

“I have covered what keeps the short-term policy rate high, but long-term rates are even higher. The 10-year bond yield is just below 10% and the 2048 bond is higher still,” Kganyago said. 

South Africa has a relatively steep yield curve, with investors demanding higher rewards in the form of elevated yields for lending money to the government. 

“You are asking investors to lock in exposure for decades and endure losses if debt does not stabilise and rates rise further. They are willing to bear that risk – but at a high price,” Kganyago said. 

He warned that with nominal GDP growing at about 5% and the government paying around 10% to borrow over the long term, state debt will crowd out private investment and other spending priorities for the country. 

“If we borrow to pay only interest on existing debt, we open ourselves up to a debt spiral,” he warned in the speech.

South Africa’s economic growth challenges are closely related to the deterioration of the state’s finances and vice versa. 

“We need to appreciate how our growth problem is endogenous to our fiscal situation. It is negative for growth to have a high and rising tax burden – especially where the quality of spending is low,” Kganyago said. 

“It hurts to have high long-term borrowing costs and a sub-investment grade credit rating. These factors help explain why fiscal multipliers in South Africa are so small. Extra government spending does little or nothing for total output.” 

This shows why growth alone will not solve South Africa’s fiscal problems without an improvement in the state’s financial health.