South Africa’s burgeoning debt crisis
In the two months since being sworn in as a Member of Parliament, I have heard numerous and lengthy speeches and debates, yet very little on the debt crisis facing South Africa. In fact, the matter has been largely ignored.
As a chartered accountant, it is unthinkable that this affordability issue does not top the agenda of Government and Parliament, considering that our spiralling debt and the cost of servicing such debt severely limits the country’s ability to address the unemployment, inequality, and poverty crises facing us.
To explain the debt crisis in South Africa in the simplest of analogies: Imagine someone going to dinner on their credit card for which their children have signed surety and maximising the limit on the card. The person wakes up the next morning hungry, with little to show for their expenditure except a maxed-out credit card. What is worse is that their children are responsible for settling the debt, impacting their ability to educate and feed themselves.
So, the reality is that South Africa has little to show for its debt, and current and future generations will have to pay a dear price for this profligacy.
Looking at the latest figures, debt is expected to increase from R5,06 trillion (71,7% of GDP) in 2023/24 to R6,22 trillion (73,8% of GDP) in 2026/27, while debt servicing costs are expected to increase from R356 billion (17,4% of government expenditure) in 2023/24 to R440 billion (18,6% of government expenditure) in 2026/2027.
What should ring alarm bells for every South African is that debt servicing currently costs R1 billion per day. In contrast, ten years ago – in 2013/14 – debt was R1,4 trillion (39,7% of GDP) and debt servicing costs was R101 billion or roughly R277 million per day (9,7% of government expenditure).
Currently, the largest proportion of government’s consolidated budget is allocated to learning and culture, and the second largest being social development. Concerningly, third largest is debt servicing costs which will soon replace social development as the second largest expenditure.
The consequences? Well, the reality that I hope hits home is that if we are to realistically tackle unemployment, poverty, and inequality, our ballooning debt burden and debt servicing costs need to be addressed with an actionable plan to arrest the escalating crisis.
At its core, the challenge that rising debts serving costs as a percentage of total government expenditure presents is that is these costs limit government’s ability to spend on vital programmes that stimulate inclusive economic growth.
It is ubiquitously understood that the only way to reduce debt levels is by increasing state revenue through growing the economy, improving tax collection, and/or reducing state expenditure. But alas, based on the budgets that Parliament recently approved, there is nothing that indicates a desire to reduce State expenditure or ability to reduce debt and debt servicing costs.
For example, the Department of Trade, Industry and Competition (DTIC), which should be driving growth and investment into South Africa to enable job creation, has its budget set to be cut by 10%.
Again, we look The South African Revenue Service (SARS), which collects over 90% of the government’s revenue, has also had its budget trimmed by a real cut of R1,3 billion, which I have coined as being akin to the government biting the hand that feeds it. It is nonsensical for the very institution that can inject revenue into the fiscus to face cuts that will adversely impact its ability to effectively collect revenue, potentially impacting overall fiscal health.
Having diagnosed the crisis, how then do we possibly address it? Beyond the obvious need to cut particularly wasteful expenditure, we can ultimately only address debt levels and the impact of debt servicing costs through the adoption of pragmatic and implementable economic policies.
At the centre of this effort must be economic growth, driven by an empowered private sector, where the government focuses on creating an environment for the private sector to drive inclusive economic growth.
I would argue that within the DTIC, key programmes that support economic growth have seen significant budget cuts, which must be reversed, particularly with a focus on the incentive programme, which has been reduced by 30%. The point is that in a highly competitive global economy, incentive support to key industries is paramount for achieving business and economic growth.
I’d further offer the obvious solution that SARS must receive additional funding and be further capacitated to increase tax collections, with a focus on the political elite and criminal syndicates that stay out of the tax net.
From investing in catalytic projects − where we implement a targeted public works programme focusing on initiatives with high potential for job creation, economic growth, and competitiveness − to exempting SMMEs within their first two years of operation from restrictive labour and financial reporting requirements and improving South Africa’s trade linkages with other African countries … These are some of the ideas I hope to champion in Parliament.
It is my sincere hope that colleagues in Parliament and the Executive treat this crisis with the urgency it demands. Ignoring the issue will not make it go away. I have committed to fighting to ensure that these issues are at the forefront of debates, because I believe we owe it to future generations to reduce the spiralling debt.
AUTHOR: Alan Beesley CA(SA) is a Member of the South African Parliament
