South Africa is heading for a fiscal disaster as the government\u2019s rising debt burden is reaching unsustainable levels, and poor economic policy is resulting in stagnant economic growth. <\/p>\n\n\n\n
Economists have been sounding the alarm over South Africa\u2019s increasing debt burden for years. They are particularly concerned about the debt-servicing costs threatening to drag the country into a debt spiral.<\/p>\n\n\n\n
South Africa\u2019s debt servicing costs have\u00a0increased<\/a>\u00a0to roughly R1 billion a day, which economists have calculated at $1 per day per South African citizen.<\/p>\n\n\n\n This line of expenditure has increased disproportionately to other expenditures, and the addition of the R254 billion Eskom bailout will increase debt servicing costs to 19.8% of total government spending in the next three years.<\/p>\n\n\n\n Citadel chief economist Maarten Ackerman said the rising debt-servicing costs increase the possibility of a debt spiral.<\/p>\n\n\n\n \u201c[South Africa] is in a tight corner, and if we don\u2019t stimulate growth, South Africa will come close to another debt spiral\u2026 this time with higher interest rates.\u201d<\/p>\n\n\n\n Ackerman also raised concerns about the government\u2019s projections for GDP growth over the short term as this underpins the calculation of South Africa\u2019s budget deficit and debt-to-GDP ratio.<\/p>\n\n\n\n According to Ackerman, the government is overly optimistic, with Treasury\u2019s estimated growth for 2023 being higher than that of all rating agencies and the Reserve Bank. <\/p>\n\n\n\n The lack of growth means South Africa\u2019s debt-to-GDP ratio and the budget deficit will likely increase over the short term.<\/p>\n\n\n\n Efficient Group chief economist Dawie Roodt joined the chorus, saying, \u201cWe are heading for a disaster in South Africa in terms of the fiscal accounts.\u201d<\/p>\n\n\n\n He warned that the government\u2019s debt burden is already unsustainable, and it continues to spend more than it collects in tax revenue. <\/p>\n\n\n\n Rising government debt will result in higher levels of inflation and even weaker economic growth, Roodt said. <\/p>\n\n\n\n Economic growth would result in a better debt-to-GDP ratio and increase the revenue collected by the government, reducing its budget deficit and enabling it to pay off more of its debt. <\/p>\n\n\n\n However, Roodt said the current economic policies of the South African government will not lead to economic growth. <\/p>\n\n\n\n \u201cWe have a destructive government in South Africa, the result of which is weak economic growth.\u201d<\/p>\n\n\n\n \u201cThere is some serious trouble heading our way,\u201d warned Roodt. The only sustainable solution is to grow the economy or for the government to significantly cut spending and raise taxes.<\/p>\n\n\n\n This article was first published by Daily Investor and republished with permission. Read the original here.<\/a><\/em><\/p>\n\n\n\n
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