South Africa running out of money

South Africa’s government is running out of money, with the state no longer simply able to borrow an increasing sum of capital to fund its expenditure. 

Government debt as a share of GDP has crossed 78%, totalling R5.8 trillion as of the end of June 2025, Reserve Bank data shows. 

This debt burden has become unsustainable, with state debt-servicing costs compounding at a faster rate than economic growth. 

In the long run, this will result in a financial crisis where the local economy will not be able to carry the burden of the state’s debt. 

In the immediate term, it means the government cannot leverage its balance sheet to invest heavily in local infrastructure and boost the local economy, forcing the state to partner with the private sector. 

Stanlib chief economist Kevin Lings said this means that the government is out of options, having to choose between the local private sector or international agencies such as the World Bank and International Monetary Fund. 

“I would say that deregulation is your only option now. It is your only choice, and while you may not like it ideologically, it is your only option,” Lings said. 

“You are out of options, and those options have been taken away because you took government debt from 26% to 76% of GDP. That increase meant you have taken away your option to use your own balance sheet.”

Lings explained at the recent 2025 Morningstar Investment Conference that the South African government has no more space to increase its borrowing. 

He said the deterioration of the state’s finances is one of the major reasons behind the country’s stagnant economy and bleak outlook. 

Crucially, however, the government knows this too and this is why it tried to raise the value-added tax (VAT) rate 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 78% of GDP. If you go any higher, you are going to bankrupt South Africa. This is dangerous territory.”

This has made borrowing more unaffordable at a time when South Africa needs billions of rands to invest in its collapsing infrastructure. 

“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,” Lings said.  

“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.”

The graph below, courtesy of the Reserve Bank in its latest Quarterly Bulletin, shows the continued growth in South Africa’s debt burden to unsustainable levels. 

Heading for financial crisis

South Africa’s debt burden has continued to grow strongly in the past financial year, increasing the pressure put on the national budget by debt-servicing costs. 

Reserve Bank data shows that the government has issued bonds worth R85.5 billion in the current financial year and has begun using other instruments to raise a further R12.3 billion. 

As a result, the total gross loan debt of the national government has increased by 8.5% year-on-year to R5.82 billion or 78.1% of GDP. 

More concerning in the short term is how debt-servicing costs have continued to eat up a greater share of the state’s budget. 

Debt-servicing costs have skyrocketed from 7.7% as a share of GDP to 15.8% over the past 15 years. The state now spends more on interest payments than on healthcare, economic affairs, or housing. 

These costs are only set to rise, with interest payments set to take up a greater share of the government’s budget than social grants in the next three years. 

The main driver of this has been a rise in the government’s debt burden, but elevated interest rates have also played a role. 

Currently, the interest rate the government pays on its debt is higher than nominal economic growth, with its rate above 9% while the economy has grown at around 5% in nominal terms. 

This means the government’s debt-servicing costs are compounding faster than the local economy, making it unsustainable. 

Efficient Group chief economist Dawie Roodt explained that this will result in a financial crisis in South Africa, with the national debt as reported not showing the entire picture. 

“If we want to really compare the finances of the state over time, we have to include the state-owned enterprises and parastatals with the local authorities,” Roodt said. 

“For instance, the debt-to-GDP ratio at a national level is above 77%. But, the actual number, including state-owned enterprises and local authorities, is around 85% and it is growing.” 

Roodt said debt is rising as a share of GDP by around 2% to 3% a year, which will soon put South Africa in serious financial trouble.

“The national accounts are in a dire state. We are heading for serious financial trouble in South Africa. We are heading for a financial crisis in South Africa,” Roodt said.