R1 billion a day – South Africa’s rising debt servicing cost

Economists are sounding the alarm over South Africa’s increasing debt burden and particularly its debt-servicing costs which threaten to drag the country into a debt spiral.

South Africa’s debt servicing costs have increased to roughly R1 billion a day, which Sean Segar of Nedgroup Investments calculates at $1 per day per South African citizen.

This line of expenditure has increased disproportionately to other expenditures and the addition of R254 billion of Eskom’s debt will amount to 19.8% of total government spending in the next three years.

Segar points out that while a primary budget surplus should be welcomed, it is misleading as such a figure overlooks the debt-servicing costs.

Instead, “we should watch [government debt] like a hawk”, said Segar.

However, Segar does not expect large new bond issuances by Treasury, as the budget deficit can be covered through its normal programme issuances and cash usage.

Segar urges the government to view South Africa’s debt burden over the long term and ensure it can be managed sustainably without burdening future generations.

The debt burden cannot be beholden to short-term election cycles and politicking.

He emphasised that government “needs to kickstart growth” as this is a sustainable way to reduce debt-to-GDP.

However, there was “nothing significant in this budget to kickstart growth”.

Citadel’s Chief Economist, Maarten Ackerman, agrees with Segar, saying the rising debt-servicing costs sound the alarm over a looming debt spiral.

South Africa “is in a tight corner, and if we don’t stimulate growth, South Africa will come close to another debt spiral…this time with higher interest rates”.

Ackerman also raised concerns about the government’s projections for GDP growth over the short term as this underpins the calculation of South Africa’s budget deficit and debt-to-GDP ratio.

According to Ackerman, the government is overly optimistic, with Treasury’s estimated growth for 2023 being three times higher than that of the Reserve Bank at 0.3%.

The lack of growth means South Africa’s debt-to-GDP ratio and the budget deficit will likely increase over the short term.

Efficient Group economist, Dawie Roodt, said that the minister’s estimations for growth were his primary issue with the budget.

According to his analysis, South Africa is probably already in recession and will produce GDP growth of close to zero in 2023.