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Rising Debt Servicing Costs Crowding Out Important Social Spending – Godongwana

The country’s debt levels are skyrocketing, taking up a bigger share of the national budget than basic education, social grants or health.

Tabling the Medium-Term Budget Policy Statement (MTBPS) in the National Assembly on Wednesday, Finance Minister Enoch Godongwana said with debt growing faster than the economy, it would need an additional R14 billion to pay it off.

This he said was due to higher interest rates, fluctuations in the exchange rate and a wider budget deficit.

The country’s debt now stands at R5.2 trillion and will exceed the R6 trillion mark by 2025.

Over the past 15 years, South Africa has accrued one of the largest increases in government debt as a share of gross domestic product when compared to other developing nations.

At R354 billion, the country’s debt-service costs now consume 20% of the main budget revenue.

It means that for every R5 collected in revenue, government pays R1 to lenders.

Debt service costs are expected to reach almost R386 billion in the next financial year.

“It is important, however, to point out that our debt levels and rising debt service costs are not problems in and of themselves. Our challenge is that rising debt services costs are crowding out important social spending, and our economy has not grown fast enough to support increasing expenditure or our current debt levels.”

Godongwana said that government would have to borrow an average of R553 billion a year to finance the budget gap, re-finance maturing debt and to also pay off Eskom’s debt.