R1 billion a day – South Africa’s skyrocketing debt-servicing costs

South Africa will pay more than R1 billion a day in debt-servicing costs over the 2024/25 financial year, and this is only set to grow, with it being the fastest-growing expenditure item in the country’s budget. 

This was revealed by Finance Minister Enoch Godongwana in the 2024 Budget Speech, where he outlined the country’s deteriorating financial health and increasing reliance on debt to fund itself. 

Godongwana said the government will spend R382.2 billion on debt-servicing costs over the next financial year, making it the third-largest expenditure item in the budget. 

Thus, more than R1 billion will be spent on paying debt-servicing costs every single day over the next year. 

This means the country spends more money on servicing debt than on policing and social grants. The government only spends more on education and healthcare. 

This line of expenditure has increased disproportionately to other expenditure items, and the addition of R254 billion of Eskom’s debt, along with other ailing state-owned enterprises, will only add to this burden. 

Last year, Nedbank CEO Mike Brown noted that South Africa’s public debt will only continue to increase exponentially. 

It is estimated South Africa will need to borrow R500 billion over the next year, or R2 billion per weekday on average, to fund its current fiscal deficit and refinance maturing debt.

Brown said this increases the risk premium attached to investing in South African assets as the debt burden is unsustainable, raising questions over whether the government can meet its obligations. 

Apart from a growing debt burden, the risk premium has been driven up by load-shedding, logistics constraints, crime and corruption, and questions over the country’s foreign policy.

The rising risk premium has resulted in the demand for government bonds from foreign investors falling

This is why debt-servicing costs are the fastest-growing expenditure item in the country’s budget. National Treasury expects it to increase by 7.3% each year until 2027. 

By then, it will be the country’s second-largest expenditure item, only behind education. 

Citadel’s chief investment officer, George Herman, said the rapid increase of debt-servicing costs should be a wake-up call for the government.