South Africa pays interest of R1.2bn a day

Enoch Godongwana, the finance minister, had some sobering news in his budget last week. In a budget that was never going to be an economic stimulant, Godongwana did what he could - under the trying circumstances - to deliver a budget that seemed to make a respectable effort to plug the many holes in the national sieve that he is tasked with managing.

Even the most valiant effort was never going to be enough to pluck SA out of the debt and expenditure black hole into which it launched itself since the "radical economic transformation" effort the government launched us all into, starting 2009, when Jacob Zuma became president.

Among other horrors, Godongwana revealed South Africa's outstanding gross debt was R4.8 trillion in the current financial year ending March 2024. This will jump to more than R6 trillion in during the year ending March 2026.

The lower-than-adequate tax intake and high government expenditure resulted in SA racking up a budget deficit every year since 2008, which forces it to borrow hundreds of billions from the capital markets to fulfil its expenditure commitments.

"These rising annual budget deficits have reached an extent where the government will borrow an average of R553 billion per year over the medium term," said Godongwana. That is R553 billion in annual borrowings to fund expenditure by March 2026.

Godongwana revealed the government is currently paying R385.9 billion per year in interest on its outstanding debt. That is R1.05 billion interest for each day of the month, including weekends that South Africa must pay on its debt. In that year, South Africa's total budget was R713 billion, said Godongwana in the Medium-Term Budget Policy Statement (MTBPS). In about five years' time, SA will be paying that amount in interest on its ballooning debt.

Expenditure

At 20% of current expenditure, interest payments are now the biggest expenditure item for the government, higher than spending on education and on health and on security.

As this debt and interest payments keep growing, they will divert more money away from these necessary expenditures to service the debt.

"To date, however, this large spending increase has had little impact on economic growth," said Godongwana. "At the same time, public debt has grown exponentially to finance the budget deficit."

The problem is not so much that SA borrows money. The issue is what it does with that money. Are we getting good value for money? I dare say: No!

South Africa has been borrowing money to consume things that will not bring in more revenue for the government. Not to increase the country's earning capacity through infrastructure investments, but rather to pay ever-increasing salaries to a growing pool of well-paid civil servants.

Those in charge seem to think creating new government departments and employing many people wearing suits is what is required to grow the economy. Far from it. These are people employed to do very little for the economy and the taxpayers.

Departments

Having government departments such as Small Business Development; Department of Women, Youth and Persons with Disabilities and that of Employment and Labour serves no other purpose than creating jobs for pals in the ruling party. There are many such useless departments in the executive, whose only reason for existence is to drain money from the economy and keep a few cadres employed. Doing nothing.

So, South Africa will continue borrowing money to pay to such people for no benefit to the economy?

Then, of course, support must be provided to the growing millions of indigent people. Each of them has to be handed pitiful amounts to tide them over. This absorbs funds that should be directed to infrastructure, which would facilitate the creation of jobs so people could earn income and lead dignified lives.

So, we are paying interest on money borrowed for consumption - at both government and at household levels. This is bad debt.

Good debt is borrowing money to fund the education and training of the young in order to increase their earning capacity. Good debt is borrowing to spend on electricity generation, road and railway infrastructure. Done correctly, those would greatly improve the earning capacity of the country and enable the government to collect more taxes from companies and employed individuals, of which there would be more.-Fin24