South Africa’s financial situation is worse than it looks

Efficient Group chief economist Dawie Roodt said South Africa’s debt burden is far larger than the official debt numbers presented in the 2025 Budget.

This is because the National Treasury did not account for the government’s obligations and liabilities, including the approved guarantees for state-owned enterprises (SOEs) or the risks posed by municipalities’ debt to Eskom.

Roodt’s comment comes after Finance Minister Enoch Godongwana presented the 2025 Budget on Wednesday, 12 March.

This Budget revealed that South Africa’s 2024/25 budget deficit was R31.8 billion higher than projected in the 2024 Budget Review as revenue collection fell below expectations. 

However, it explained that debt redemptions were R73.8 billion lower than estimated a year ago as the government’s bond-switch programme continued to exchange shorter-dated for longer-dated bonds. 

As a result, the country’s gross borrowing requirement, which consists of the budget deficit, maturing debt and the Eskom debt-relief arrangement, decreased from a projected R457.7 billion to R415.7 billion for 2024/25, or from 6.1% to 5.6% of GDP.

“Over the past year, improved investor sentiment has contributed to a more benign financing environment,” it said.

“The major factors contributing to this positive trend were the formation of the Government of National Unity, the absence of load-shedding and interest rate reductions.” 

“These developments were also reflected in South Africa’s credit rating outcomes, which either remained stable or were upgraded from stable to positive.”

The Budget further showed that the government’s gross debt stock is expected to increase from R5.69 trillion in 2024/25 to R6.81 trillion in 2027/28. 

Its net loan debt – gross loan debt less cash balances – will increase from R5.47 trillion to R6.70 trillion over the same period. 

The government’s gross loan debt is now expected to stabilise at 76.2% of GDP in 2025/26.

Dawie Roodt comments on the budget

Roodt explained in the Efficient Group’s post-Budget presentation that the government’s debt figures exclude two important factors.

“There are explicit and implicit debts that the Minister of Finance must include in his outstanding debt estimates as well, and he doesn’t do that,” Roodt said.

Explicit debt refers to the debt that is officially recognised in government accounts, such as direct government borrowings and guaranteed loans.

In contrast, implicit debt refers to financial obligations that are not immediately recorded as liabilities but could become a burden on public finances if certain conditions are met. 

This includes approved guarantees for SOEs and debts owed by municipalities.

For example, Roodt specifically mentioned the R770 billion in approved guarantees for South Africa’s state-owned enterprises as the first factor that the National Treasury did not include.

This includes Eskom, the largest government guarantee exposure at about 81% of the portfolio, with an outstanding exposure of R357.6 billion.

“With the implementation of the Eskom debt-relief arrangement, the volume of exposure to Eskom has declined,” the National Treasury said. 

“However, given Eskom’s share of guarantee exposure, the risk from state-owned companies remains elevated.”

Transnet, the South African National Roads Agency and other SOEs also have significant guaranteed loans.

Roodt explained that while these guarantees do not appear as direct government debt, they become liabilities if the SOEs fail to repay their loans, forcing the government to step in.

The second factor the government did not account for in its official debt figures is the municipal debt owed to Eskom.

Municipalities owe Eskom an estimated R95 billion as of December 2024, up from R74.4 billion in March 2024.

While the National Treasury introduced a debt relief programme for these municipalities, many fail to meet the conditions needed to write off their debt.

The 2025 Budget Review explained that key issues include persistent non-payment of monthly electricity accounts and an inability to collect the mandated 85% of revenue.

It said 47 municipalities have consistently defaulted and already accumulated substantial arrears after receiving debt relief. 

“Despite monthly support from provincial treasuries, these municipalities continue to struggle with financial management, risking removal from the programme,” it said.

Therefore, while measures are in place to alleviate this municipal debt burden on Eskom, the power utility will likely continue to be financially strained.

This means the burden of turning Eskom’s financial fortunes around will likely fall to the government again, increasing its liabilities.

Regardless of what the official debt figures represent, Roodt said the reality remains that South Africa’s debt is on the wrong path.

“The debt trajectory is unsustainable. That is the reality. That is what we are facing now,” he said.

He added that the 2025 Budget marks the first he has seen where debt-servicing costs are a larger expenditure item than social protection.

In the 2025/26 fiscal year, the government will pay R1.1 billion a day to service its debt, spending a total of R424.9 billion.

This will increase to R478.6 billion, or R1.3 billion a day, by the 2027/28 financial year, as the government struggles to arrest its financial decline.