‘Government must fix its debt’

If SA is to overcome the downward spiral of public debt, that debt will have to be restructured, says an economist.

Unless that is done, the economy will not be able to manage the service costs, estimated to be about R333.4 billion a year between now and 2025, Miyelani Mkhabela, chief economist at Antswisa, said.

The government’s debt moved from 27% of gross domestic product (GDP) in 2008, to 69.5% in 2021-22 which translated to R4.35 trillion. National Treasury expected the debt to stabilise at 75.1% in 2024-25.

Inflation

Mkhabela said current stubbornly high inflation above 6.5% could influence debt ratios through higher nominal GDP and higher nominal interest rates.

Giving context to country’s situation, Mkhabela said: “Primary balance surpluses and real GDP growth are the most important drivers of debt ratio reductions in advanced economies and emerging markets.

“South Africa is expected to have a current account deficit of 2.5%-3% of GDP this year and 3% of GDP in 2024, highlighting an economy that doesn’t muscle strengths on balance.”

Nominal interest expense always contributes positively to the change in ratios. Real GDP growth and, notably, inflation play a relatively bigger role in reducing debt ratios in emerging market economies and low-income countries.

ALSO READ: We have one person to thank for the lowest rand ever – economist

Private members bill

Among efforts to arrest the situation, the Democratic Alliance’s shadow minister of finance, Dr Dion George proposed a private members Bill that sought to introduce statutory fiscal rules to contain national debt and service costs in South Africa.

A memorandum to George’s Responsible Spending Bill, currently before parliament, said until steps were taken to bring South Africa’s debt levels under control in relation to its GDP, South Africa would never be able to allocate funding to areas most in need of support, including basic and higher education, social grants and health care.

“South Africa must commit itself to sustainable control over the fiscus,” the memorandum read. “By focusing on current consumption expenditure and excluding capital expenditure from the adjustments, the Bill will implicitly encourage the government to invest more in capital projects, such as infrastructure, which can have long-term positive effects on economic growth and social well-being.”

Debt

Political economy analyst Daniel Silke said government debt has been increasing substantially over the last 10 years, leaving the country hard-pressed to borrow more. Silke, who preferred to speak in general terms on the country’s debt, said it was exacerbated by its interest.

“The interest on debt in particular has been a huge spend-line item on the national budget – more than most of our critical government departments.”

There had been efforts to try and limit the debt levels that the state incurred and legislation had been part of that move.

“This is an effort to introduce some fiscal prudence into the way that the government managed its finances and not get caught in increasing debt levels and the debt burden that this places on SA,” Silke said.

Debt level

“If the debt continues at these levels, there will be further weaknesses in our currency and further pressures for taxation increases going forward. Ultimately, of course, more crowds out or prevents expenditure on critical infrastructure items that really need assistance,” Silke said.

The analyst commended SA for doing a good job in monitoring and managing its debt. “I think it’s been monitored relatively well thus far.

 “We are not out of sync with many other countries in debt levels. I think in some instances we are actually better than some foreign countries,” Silke said.

ALSO READ: It will take one almighty bomb squad to save SA