Treasury risks losing control of South Africa’s debt

Enoch Godongwana

South Africa’s growing debt burden and rising budget deficits are becoming unsustainable and unmanageable, prompting concerns about the National Treasury’s ability to manage the country’s debt portfolio.

This is feedback from Professor Michael Sachs, an economy expert and former head of the budget office at the National Treasury.

He told Parliament that Finance Minister Enoch Godongwana had effectively created an entirely new budget in the Medium-Term Budget Policy Statement (MTBPS).

Sachs made a presentation on the medium-term budget during public hearings held by Parliament’s two finance committees.

The former Treasury official raised concern about the country’s growing debt burden, which is becoming unsustainable and unmanageable. 

Cutting expenditure on social services to ensure the government can service its debt would lead to a further deterioration of service delivery. 

“South Africa’s economic growth crisis is manifesting as a fiscal crisis, and austerity measures, which have been ineffective in stabilising debt over the last ten years,” he said.

It contributes towards lower aggregate demand, lower growth and a weakened state. It is also unlikely that debt can be stabilised while GDP per capita continues to fall.

This crisis is deepening due to South Africa’s poor economic performance, high interest rates, and global uncertainty. 

Michael Sachs
Michael Sachs

During the MTBPS, Godongwana said government spending has exceeded revenue since the 2008 global financial crisis, resulting in debt growing faster than the economy. 

Godongwana said the consolidated budget deficit has risen to 4.9% of GDP in 2023/24 compared with the estimate of 4% in the 2023 Budget. 

The National Treasury reported that the deficit was R14.6 billion in September from R3.3 billion a year earlier. 

This resulted in the main budget deficit for the first six months of the government’s financial year growing to R253 billion – a year-on-year increase of 54%.

To finance this growing deficit, Godongwana said the National Treasury will increase its borrowing rate. 

These rising annual budget deficits have reached an extent where the government will borrow an average of R553 billion annually over the medium term.

This means that the state will borrow R1.5 billion per day to fill the gap between revenue and expenses.

As a result, gross debt will rise from R4.8 trillion in the current financial year to R5.2 trillion in the next financial year. By 2025/26, it will exceed R6 trillion.

Sachs is concerned that the National Treasury does not have the capacity to manage this debt portfolio and should create an independent debt management office to ensure better management. 

He also recommended a reform of the legislative framework for the gold and foreign exchange contingency reserve account to create a more predictable approach that balances cash, reserve management and other objectives.


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