South Africa in Debt


A quick glance at the most recent South African Reserve Bank Quarterly Bulletin, published in March 2021, shows that South Africa’s gross loan debt stood at R3 833 billion in December 2020, a 20.8% increase from the previous year. This means that SA’s gross loan debt is now at an 83% as a percentage of our gross domestic product (GDP).

A study conducted by the world bank showed that a ratio exceeding 77%, for an extended period, may result in a negative impact on economic growth. South Africa is really flying too close to the sun on this metric!

How, then, could the country’s debt be so high? And should we be concerned by the increasingly disproportionate rate of increases between government expenditure and revenue?

Figure 1: South African Government Debt to GDP

The gross national debt is money owed by the national government, meaning it excludes the debts of provincial and local governments. This national debt includes debts owed to the foreign sector, financial institutions, insurers and official pension funds, among others. For a country to function, a certain proportion of its spending is bound to be financed through debt. South Africa’s debt, however, has been increasing at a concerning rate over the years.


One major factor to this phenomenon is that, over the years, government’s expenditure has ballooned, with government spending more and more on programs and infrastructure aimed at boosting the economy and solving the country’s ever worsening social ills.

Goldman Sachs Group Inc sited Eskom’s R484 billion debt as South Africa’s biggest economic risk. However, as alluded to earlier, national revenue is not rising to meet the increased expenditure but instead, decreasing by 10.1% in 2021. The budget deficit has therefore risen to 12.3% of GDP. The extra expenditure thus has to be financed through borrowing. How then, has the government made an effort to combat this issue?

The South African government, as a way of raising funds, regularly extends loans through the sale of government bonds treasury bills. In an effort to increase the income from these loans, the government increases the interest rate. The effect of this is the increase on interest payment that government pays on their loans, which has meant that

around 12% of government expenditure is on interest payments alone. To meet this increased expenditure, government borrows more which keeps the debt cycle on going.

This cannot be sustained and some economists have suggested that South Africa is on the verge of a debt crisis with gross loan debt as a percentage of GDP expected to be between 84% to 90% by the end of the 2021/2022 financial year. The ever- increasing debt-to-GDP will only serve to negatively affect the country’s borrowing costs, worsening South Africa’s woes.

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