Government debt balloons to R5 trillion

Finance Minister Enoch Godongwana revealed in his Budget Speech today that the government net loan debt has grown to R5.06 trillion – 71.7% of the country’s GDP.

The government’s gross loan debt has reached R5.21 trillion, or 73.9% of GDP.

The government’s debt burden has continued to grow over the past few years, and is now well above the emerging markets average of 50%. 

South Africa has continued to spend more money than the government can collect in tax revenue, resulting in consistent budget deficits, which have been plugged by borrowing more. 

Godongwana also revealed today that the budget deficit for the 2023/24 financial year was R347.4 billion.

These consistent deficits and high government expenditures have led the government to rack up billions in debt.

This has also seen the government’s debt servicing costs skyrocket, and it is now one of the largest spending items in the budget. 

Godongwana said today that debt-service costs will absorb more than 20% of revenue.

“To put this into perspective, spending on debt-service costs is greater than the respective budgets of social
protection, health, or peace and security,” he said.

Many institutions have warned that South Africa’s debt burden is becoming unsustainable.

The Finance Minister himself recently said, “Right now, we have got a challenge because our growth levels are insufficient to be able to cope with higher levels of debt.”

The Reserve Bank has also issued a warning that South Africa’s financial stability is at risk from the government’s debt and interest payments growth, as the country’s financial sector has increased its exposure to local government bonds. 

At the 2024 World Economic Forum, Standard Bank chair Nonkululeko Nyembezi said a sovereign debt crisis is the biggest issue facing Africa right now.

She said nations need to address corruption and implement “fundamental structural reforms” to address their problems.  

“People went and got low-interest loans by the bucketload,” she said. “We now have to contend, country by country, with how to support countries.”

According to the International Monetary Fund, more than half of the low-income countries in the region are now assessed to be at a high risk of or already in debt distress. 

Some economists are also concerned that South Africa will soon enter a debt spiral as the government has already begun to issue new debt to pay off existing debt. 

However, Citadel chief economist Maarten Ackerman said South Africa has not yet entered a debt spiral, but avoiding it will require making tough choices. 

Ackerman said a country typically enters a debt spiral when its debt-to-GDP ratio reaches 90%.

A study by the World Bank shows that countries whose debt exceeds 77% as a percentage of GDP for prolonged periods experience significant slowdowns in economic growth.

Ackerman said this is something the country cannot afford, given its already stagnant economy.