South Africa’s massive R1 billion a day headache

 ·24 Jan 2024

South Africa’s debt servicing costs are growing astronomically, with the country not being able to show much for the increases.

In the Medium-Term Budget Speech in November last year, Finance Minister Enoch Godongwansa said that the nation’s gross debt is set to increase from R4.8 trillion in 2023/24 to R5.2 trillion in 2024/25.

The minister added that the debt service costs will increase from 20.7% of revenue in 2023/24 to 22.1% in 2026/27.

He said that over the next year alone, the cost/interest on this debt will amount to roughly R385.9 billion.

This means that South Africa will spend roughly R1.06 billion a day on servicing its debt.

Over the Medium Term Expenditure Framework, which runs to 2026/27, these interest costs are expected to reach R1.3 trillion.

Although South Africa’s high debt-to-GDP – expected to stabilise at 77% of GDP in 2025/26 – is not uncommon for emerging markets, there is usually something to show for it.

Stanlib Chief Economist Kevin Lings said that the government’s R1 billion per day interest bill is coming at the cost of other services, including education, health and infrastructure.

“If we walk around the country a bit, we’ve taken up debt enormously, but what do we have to show for it, other than stadiums? You’re going to struggle to find something to demonstrate (value for money),” Lings said.

“If you look at China, go back to the same time period, government debt was 28% of GDP (in 2009), and now it’s at 80% – slightly higher (than South Africa).

“But if you walk around China, you can see what they spent the money on. The development over that time period is just phenomenal. They put themselves in a position to sustain decent growth for many years – those assets are going to last for decades. They will reap the reward for undertaking the investment.

Crunching the numbers

Budget projections have shown that for every R1 that the government spends, the amount that is spent on debt has risen from 7 cents in 2009 to 22 cents.

Recent research from Stats SA has shown how the government’s spending habits have changed over the years.

The statistics body also said that the purchases of non-financial assets such as infrastructure investments and other fixed assets saw the biggest drop in the percentage of overall expenditure, falling from 9.7% of total expenditure in 2014/2015 to 5.9% in 2021/2022.

The second largest drop was seen in goods and services (-2.3%), particularly in the general public services, public order and safety, defence and economic affairs.

However, interest on debt saw the largest increase in the share of government expenditure, rising from R125.6 billion (9.2% of total spending) in 2014/2015 to R284.4 billion (13.0% of total expenditure) in 2021/2022. The picture is worryingly getting worse, with it expected to hit 22.1% in 2026/27

Social benefits also saw growth of 2.5% over Stats SA’s study.

“In a nutshell, what does this tell us? That the focus of government spending has shifted away from non-financial assets (which includes investment in infrastructure) and goods and services, and towards social benefits and interest payments on debt,” Stats SA said.

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