In this guide to South Africa’s National Debt, we discuss the amount of the debt, how it’s calculated, who controls it, who holds the debt, how the government raises funds, and the political issues surrounding its debt.
The National Debt of South Africa
The national debt of South Africa is the money owed by the country’s federal government, which is based in Pretoria. The debts of South Africa’s states and local government are not counted as part of the country’s national debt.
The country’s debt has been rising as a proportion of the nation’s GDP for some years.
How South Africa’s Debt is Calculated
The South African national debt has become a political issue in recent years because guarantees on loans taken out by state-owned enterprises are not included in the debt figure and these obligations are rising to a sizable amount.
Obligations to the Government Employees Pension Fund and also the national pension scheme, which is run by the South African Social Security Agency are also not included.
Day-to-day debts of government departments and agencies that are represented by unpaid invoices are also not counted in the calculation of the national debt figure.
Who Controls South Africa’s Debt?
All debt taken out by South Africa’s government is ordered by the Ministry of Finance. The Asset and Liability Management Division of the Ministry is directly in charge of tracking government debt and issuing debt instruments to raise money.
How Does the South African Government Raise Loans?
The sale of debt instruments is announced by the Asset and Liability Management Division on a schedule. Only registered brokers are allowed to participate in these actions, which are run online through the government’s Money Market Internet System (MMIS).
South Africa raises funds in several ways:
- South African Government Retail Bonds
- Government bonds
- Treasury bills
- Inflation-linked bonds
- Benchmark bonds
South African Government Retail Bonds
Although most of South Africa’s debt is raised through traditional government bonds and Treasury bills, the government also runs a savings bond scheme which is aimed at the general public. These bonds are called RSA Retail Savings Bonds.
The different types of savings bonds offered by the South African government are shown in the table below.
| Duration | Rate Type | Interest Rate |
|---|---|---|
| 2 Year | Fixed | 0.08 |
| 3 Year | Fixed | 0.085 |
| 5 Year | Fixed | 0.09 |
| 3 Year | Inflation-linked | 0.025 |
| 5 Year | Inflation-linked | 0.0275 |
| 10 Year | Inflation-linked | 0.03 |
Government Bonds
The South African government also offers debt instruments to commercial investors. The maturity period that makes the difference between “short-term” and “long-term” is one year.
Treasury Bills
Treasury bills offer no interest. They are sold at a discount and redeemed at full face value.
Benchmark and Inflation-Linked Bonds
The South African government offers two types of bonds for long-term financing. These are:
- Benchmark bonds with a fixed interest rate paid annually
- Inflation-linked bonds, the face value of which rises each year with inflation
Inflation-linked bonds offer the same interest rate every year, but the capital that the interest rate is applied to rises each year, and so they pay out more as time progresses.
Who Holds South Africa’s Debt?
The Asset and Liability Management Division categorizes bondholders by the following sectors:
- Foreign sector
- Monetary authorities
- Long-term insurers
- Short-term insurers
- Private self-administered funds
- Official pension funds
- Other financial institutions
- Other sector
The major holders of South African bonds, and therefore, the owners of South Africa’s national debt, are shown in the table below. Each sector’s share of the total stock of benchmark bonds and inflation-linked bonds is itemized.
| Sector code | Percentage of benchmark bonds | Percentage of inflation-linked bonds |
|---|---|---|
| Foreign sector | 49.578 | 2.253 |
| Monetary authorities | 15.502 | 20.109 |
| Long-term insurers | 5.576 | 4.1 |
| Short-term insurers | 0.628 | 1.962 |
| Private self-administered funds | 2.954 | 14.568 |
| Official pension funds | 15.651 | 48.525 |
| Other financial institutions | 9.573 | 8.263 |
| Other sector | 0.546 | 0.219 |
| CSDP reporting error | 0.005 | 0.001 |
| 100 | 100 |
Political Issues With South Africa’s National Debt
From 2017 onwards, the state of South Africa’s national debt has become a hot topic in parliament. By 2018, the issues argued about the national debt started to frighten off international investors.
Former President Jacob Zuma used debt to fund social programs without raising taxes. However, this policy has begun to be unsustainable.
Although South Africa’s debt-to-GDP ratio is relatively modest, the government must offer high interest rates to attract investors to its bonds.
Expansion of Debt
The result of high interest rates and the government’s expansion of debt means that interest payments rose from R57 billion in 2010 to R162 billion by Q1 2018. This means that the government has to spend 13% of its income on interest payments in 2018.
The removal of Zuma in 2018 should have alleviated the concerns of international investors. However, revelations about the government-guaranteed debts of state-owned enterprises caused more panic in the investor community.
Off-Budget Debts
These guarantees are not counted in the national debt figure, even though they are obligations undertaken by the government and are owed by public-sector companies, such as power utility Eskom and South African Airways.
These hidden debts are worrying because “off-budget” debts have been the downfall of many nations, particularly those in emerging economies. Contagion from problems in other emerging economies has also reduced the attractiveness of South African government bonds to international investors.
Trouble Ahead?
South Africa’s national debt could easily become unmanageable if the government continues borrowing to cover interest payments. This policy is known by economists as “debt amplification.”
More Facts About South Africa’s Debt
- You could wrap $1 bills around the Earth 1,083 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 30,374 km, or 18,874 miles high.
- That's equivalent to 0.08 trips to the Moon.
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Further Reading
- South Africa’s Biggest Import and Exports
- Real-Time World Debt Clock
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