South Africa heading for a debt spiral

Economists and government officials have warned that South Africa’s rising debt is increasingly concerning without strong economic growth.

These warnings join red flags raised in 2020 by the deputy governor of the South African Reserve Bank (SARB), Kuben Naidoo.

South Africa’s debt burden has steadily risen over the last decade and, with the government takeover of R254 billion of Eskom debt, it is set to increase further.

The country’s debt is expected to rise from R4.73 trillion in the current financial year to R5.84 trillion in the 2025/26 financial year.

This would result in debt-to-GDP peaking at 73.6% in 2025/26 – two percentage points higher than anticipated by the National Treasury in the Medium Term Budget Policy Statement.

Treasury estimates that South Africa’s debt servicing costs will average R366.8 billion annually over the next three years, reaching R397.1 billion in 2025/26.

This equals over R1 billion in debt servicing costs per day which Sean Segar of Nedgroup Investments said equates to $1 in payments per day per South African citizen.

Segar emphasises that debt is growing disproportionately to other budget items and is the fastest-growing line item.

Debt repayments are expected to equal 19.8% of all government spending at the end of 2026, making it the third largest budget item behind social grants and education.

Citadel’s chief economist, Maarten Ackerman, issued a warning: “South Africa is in a tight corner and if we don’t stimulate economic growth, South Africa will come close to another debt spiral.”

Historical warnings

Warnings about the country’s unsustainable debt burden are not new.

Kuben Naidoo, a deputy governor of the South African Reserve Bank, has repeatedly warned about a looming debt spiral.

In 2020, Naidoo penned an opinion piece that warned that “South Africa is close to an unsustainable debt spiral”.

Naidoo was previously the head of the National Treasury’s budget office and has intimate knowledge of South Africa’s debt levels, structure, and repayments.

Foreshadowing Ackerman’s warning, Naidoo said, “If we want to grow the economy and restore the jobs being lost, we have to free up the resources for private investment to return.”