South Africa’s debt has skyrocketed – new rules are needed to manage it

By Robert Botha

South Africa’s fiscal trajectory paints a concerning picture. Public expenditure exceeds revenue. As a result sovereign debt is building up and interest on this debt is increasing.

This raises concerns over the South African government’s financial sustainability. The debt-to-GDP ratio has skyrocketed from 23.6% in 2008/09 to a projected 74.7% in 2024/25. The International Monetary Fund has recommended that, over the long term, South Africa should reduce its debt-to-GDP ratio to 60% of GDP, in line with that of peers.

Arguably more important than the debt level is how quickly debt has accumulated. Debt servicing costs, which consist of the interest on government debt and other costs directly associated with borrowing, have been the fastest-growing line item in the national budget. Rising interest payments have been crowding out critical expenditures on services such as health, education and infrastructure.

As I argue in a recently published report titled “A fiscal anchor for South Africa: Avoiding