South Africa’s debt dynamics, Covid-19 and the way forward
South Africa’s debt had already reached worrying levels long before the Covid-19 pandemic reached the country’s shores. The debt-to-GDP ratio increased from 26.5% in 2008 to 62% in 2019 - exceeding the IMF’s suggested 55% debt-to-GDP ratio. The high and rising debt levels have meant that increasingly more budgetary funds are to be directed towards the servicing of the debt instead of important pro-development expenditures such as spending on human capital and infrastructure. During FY2010/11 approximately R66 billion went towards debt serving costs, which was 7.5% of consolidated government expenditure. However, by FY2019/20 around R205 billion was going towards debt service costs, bringing this expenditure item to 11.1% of government’s consolidated expenditure. This is a relatively high proportion of total expenditure, especially when compared to expenditure items such as "economic affairs" and "health", which made up 13.1% and 11.8% of the total consolidated government expenditure, respectively. Budget 2020 had estimated debt-service costs at R229.3 billion for 2020/21, with the growth of the cost averaging 12.3% during 2019/20 to 2022/23. This will, of course, become much higher due to the additional borrowing on account of the Covid-19 crisis relief efforts.
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