One thing South Africa gets right

Despite South Africa’s notable state debt burden, the country has managed to avoid raising a large amount of foreign-denominated debt.

This has allowed the country to avoid a common pitfall among emerging market economies, as only around 13% of South Africa’s debt is denominated in foreign currency.

In a recent Parliamentary question and answer, Finance Minister Enoch Godongwana was asked about the breakdown of South Africa’s gross loan debt for each of the past five fiscal years.

DA MP James Lorimer asked Godongwana what total amount constitutes rand- and foreign-currency-denominated debt instruments.

In response, the minister explained that the government finances its gross borrowing requirement through a mix of instruments, including domestic short-term and long-term loans, foreign loans, and surplus cash balances.

He further provided figures for the past five fiscal years, from 2020/21 to 2024/25, which showed that South Africa has decreased its foreign loans over the period.

Instead, the state has relied more heavily on domestic long-term loans to finance its borrowing requirement.

Efficient Group chief economist Dawie Roodt explained in a December interview with Sakeliga that this is one thing South Africa has gotten right over the past few years.

“Typically, what happens with emerging economies like South Africa is they start borrowing a lot of dollars, and then they start splashing these dollars, start spending their dollars, and they run out of the reserves to repay those dollars eventually,” he explained. 

“Argentina is a very good example of that. That hasn’t happened in South Africa. We recently, relatively speaking, increased our dollar-denominated debt, but not by too much.”

He said South Africa’s foreign currency-denominated debt is approximately 13% of the state’s total outstanding debt. 

“So, fortunately for us, we’ve got more than sufficient reserves at the Reserve Bank to pay that off,” he said. 

“That’s something that I think the Reserve Bank has been very good at the last couple of years – making sure we’ve got sufficient reserves.”

The breakdown of South Africa’s financing of the national government’s gross borrowing requirement can be seen in the table below.

South Africa’s debt burden

While South Africa has managed to avoid what is often referred to as the “original sin” of emerging market economies, the country’s debt burden remains unsustainable.

This is because the state’s massive R5.3 trillion debt burden has made debt service costs one of the state’s biggest spending items.

This crowds out spending on more productive sectors of the economy, such as health, education and the police, hampering the state’s ability to invest meaningfully in growing the economy.

While the National Treasury has plans to stabilise its debt and continue to run primary budget surpluses, Roodt said South Africa is still not on an ideal path.

“What we’ve seen in this latest Budget is slightly better growth forecasts, therefore slightly better forecasts of tax, and therefore slightly lower forecasted deficits, but still big deficits, still accumulation of debt – still not a fantastic trajectory,” he said.

Roodt is particularly concerned about the state’s rising debt-service costs, which now cost the state around R1.2 billion a day.

“To put it in perspective, each one of us, on a per capita basis, owes R100,000 more than what you think you owe, because that’s the debt to GDP roughly,” he said. 

“We pay billions of rands on interest on state debt. It has become unsustainable.”

In conversation with Roodt, Sakeliga executive director Russell Lamberti pointed out that while South Africa has started to consistently run primary budget surpluses, state debt continues to grow.

“The reality is that debt keeps on going up, and that has become unsustainable. This year, about R350 billion is the deficit, and it’s forecast to come down over the next couple of years,” he said. 

“That’s a forecast. It looks better. Looks like it’s the deficit is shrinking, but that’s just the deficit shrinking. You’re still adding to the debt pile.”

“And if you look at the big picture numbers, about R1 trillion new debt will be added over the next three to four years, depending on the outlook.”