South Africa heading for a debt spiral 

Enoch Godongwana

South Africa is facing a debt spiral as the growth of government expenditure continues to outpace its revenue growth, forcing it to raise additional debt to finance the growing deficit. 

The government’s budget deficit widened further in August and September compared to a year ago as government expenditure continues to grow faster than revenue. 

Its main budget deficit increased to R63.3 billion, including Eskom debt relief, in August, up from a deficit of R42.7 billion in August 2022.

The provisional financing data from the National Treasury for September 2023 also points to a widening budget deficit. The main budget deficit is expected to be R12.8 billion, compared to R3.3 billion in September 2022.

Treasury said total revenue growth was 8.7% year-on-year in August, while total expenditure grew at a stronger pace of 9.2%.

The cumulative main budget deficit in the first five months of the 2023/24 fiscal year amounts to R238.4 billion, or R254.4 billion, including Eskom debt relief. 

This is much higher than the deficit of R160.7 billion in the same period in 2022/23.

To finance this growing budget deficit, the government has had to increase its debt. From the beginning of August, the National Treasury has increased the issuance of government debt by R2 billion to over R14 billion per week.

South Africa’s debt to GDP Ratio. Source: Statista

“We are in quite a lot of trouble,” the chief economist at Econometrix, Dr Azar Jammine, told Newzroom Afrika

The government is unlikely to run out of money as investors are still willing to buy local bonds. However, the state must increase the interest rate it pays bondholders to attract buyers. 

“We are in difficulty because those long-term interest rates have risen to their highest level in many years. This means the amount the government has to spend on servicing its debt is rising inexorably.” Dr Jammine said. 

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.

Naidoo has repeatedly warned about a looming debt spiral. In 2020, he penned an opinion piece warning 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.

“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,” Naidoo said. 

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.

Worryingly, 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, said earlier this year, “South Africa is in a tight corner, and if we don’t stimulate economic growth, South Africa will come close to another debt spiral.”

Dr Jammine echoed Ackerman’s assessment by saying, “One must recognise that the root cause of the problem is that economic growth has been too low for far too long.”


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