Finance Minister Enoch Godongwana said government spending has exceeded revenue since the 2008 global financial crisis, which puts it on the road to a fiscal crisis.
Godongwana revealed the country’s dire finances during his medium-term budget policy statement, released on Wednesday.
These rising annual budget deficits have reached an extent where the government will borrow an average of R553 billion annually over the medium term.
Put another way, it means that the state will borrow R1.5 billion per day to fill the gap between revenue and expenses.
As a result, gross debt will rise from R4.8 trillion in the current financial year to R5.2 trillion in the next financial year. By 2025/26, it will exceed R6 trillion.
“We expect gross government debt to stabilise at 77% of GDP by 2025/26. This is higher than the level we forecasted in February,” the minister said.
Over the next three years, debt-service costs as a revenue share will increase from 20.7% to 22.1%.
The cost, or interest, on this debt for next year alone amounts to R385.9 billion. This is more than R1 billion per day.
Over the medium-term expenditure framework (MTEF), South Africa’s interest costs amount to R1.3 trillion.
Godongwana explained that South Africa’s debt levels and rising debt service costs are not problems in and of themselves.
The challenge is that rising debt services costs crowd out important social spending, and the economy has not grown fast enough to support increasing expenditure.
The situation forced the Finance Minister to deliver a policy statement aimed at avoiding a fiscal crisis and preventing the build-up of systemic risks to the economy.
“The decisions we have taken include spending reductions and reprioritisation while also taking concrete steps to support growth,” he said.