South Africa to pay R1.3 billion per day for ‘nothing’

Momentum Investments said the South African government will spend R1.3 billion a day by 2027 to service its escalating debt burden.

Momentum Investments published this concerning number in its review of the government’s Medium-Term Budget Policy Statement on Wednesday, 30 October 2024.

The company said interest payments on debt have outpaced economic growth over the last decade.

This suggests that the economy is not generating sufficient revenue to meet increasing interest expenses.

Consequently, a substantial portion of government resources is directed toward servicing the interest bill rather than being used to deliver essential services.

Things are set to get worse. In the medium term, real growth in debt-service costs of 3.3% is expected to outpace the anticipated real growth in revenue of 1.6%.

Momentum Investments said South Africa’s interest bill is expected to stabilise at 5.2% of gross domestic product in the 2024/25 financial year.

That means debt-service costs will, on average, consume 22 cents of every rand the government collects in the Medium Term Expenditure Framework.

“Worryingly, by 2027/28 financial year, the government will be spending R1.3 billion a day to service its escalating debt burden,” Momentum Investments.

That means the government spends more on debt-service costs than on basic education, social development, economic development, peace and security, and health.

At 7.8%, debt-service costs were the second-fastest growing nominal expenditure item between 2024/25 and 2026/27.

Nominal spending on the capital budget is expected to grow by an average of 10.8% between 2024/25 and 2026/27, relative to a previous estimate of 10.1%.

Spending on health, peace, and security is expected to grow at a mere 3.8% and 4.2%, respectively, over the same period.

Debt servicing costs are a drain on an economy as they do not add value to the country, like infrastructure development or education.

Therefore, citizens get ‘nothing’ for this tax money other than paying for the government spending too much in the past.