An investigation into the causes and effect of rising public debt in South Africa, 2009-2019

Abstract

This study delves into the intricate factors contributing to the rising public debt in South Africa between 2009 and 2019, while also scrutinising the efficacy of public debt expenditure during this period. By examining data sourced from the SA National Treasury of South Africa and the South African Reserve Bank (SARB), the research endeavours to elucidate the underlying causes behind the burgeoning public debt and assess the impact of expenditure patterns on economic outcomes. The global financial crisis of 2008/2009 marked a pivotal juncture for South Africa's economy, precipitating a series of fiscal challenges that reverberated throughout the subsequent decade. Against this backdrop, this study embarks on a dual mission: firstly, to decipher the drivers underpinning the surge in public debt, and secondly, to gauge the efficacy of public expenditure vis-Ã -vis economic growth and development objectives. From 2009 to 2019, fiscal analysis shows a clear pattern of growing budget deficits, with government spending surpassing revenue growth. South Africa's fiscal policy has heavily favoured deficit spending, relying on debt to cover revenue shortfalls and maintain expenditure growth. Most government spending goes towards current payments and social transfers, leaving little for capital formation. Despite the National Development Plan's emphasis on investing in productive assets, both public and private sector investments have consistently fallen below targets, hindering significant contributions to economic growth. The rising public debt in South Africa stems from numerous factors, including excessive spending on unproductive areas like government compensation and social transfers, alongside high borrowing costs. This consumption-focused economic approach, coupled with insufficient investment in productive assets, has hindered South Africa's economic progress compared to global counterparts. Given these challenges, it is crucial to shift fiscal priorities towards strategies focused on investment-led growth.