South Africa has a growth problem – not a debt problem

Finance Minister Enoch Godongwana said the size of South Africa’s debt is not the problem but rather the economy’s capacity to service the debt.

In the 2024 Budget, Godongwana revealed that South Africa’s net loan debt has grown to R5.06 trillion – 71.7% of the country’s GDP.

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

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. 

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 also revealed 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.

However, Godongwana told SABC News that this issue with South Africa’s debt burden is not its size.

He pointed to countries like Japan, Italy, and the US, which have debt-to-GDP ratios well over 100%.

“No one worries because it is the capacity of the economy to service the debt that is important,” he explained.

“The problem with us is not the size of our debt – it is a growth issue. It’s the capacity of our economy to service that debt, and we can only deal with that capacity when we grow the economy substantially.”

However, he acknowledged that in the absence of that growth, the National Treasury must minimise the impact of this rising debt on the economy.

This is why the government dipped into the Reserve Bank’s gold and foreign exchange reserves account.

Godongwana announced during the Budget Speech that the National Treasury will restructure reserves held at the Reserve Bank to free up R150 billion over three years.

The account, known as the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), showed paper profits of R507.3 billion as of January.