POLITICS

We're Spending More On Debt Than On Land And Tertiary Education

South Africa now owes more than half of what it produces every year to lenders.

27/02/2017 12:13 SAST | Updated 27/02/2017 13:33 SAST

South Africa is starting to choke on debt.

We're spending more on servicing our debt — including interest repayments — than we are spending on tertiary education or land reform, two hot-button issues that have been major political talking-points in recent times.

This country will be repaying R162 billion on the debt in 2017/18. Government has set aside R180 billion for social grants, R188 billion for health and R243 billion for basic education.

Tertiary education will cost us R78 billion this year, while agriculture and land reform will be portioned R27 billion.

Finance Minister Pravin Gordhan told the National Assembly this week our total foreign debt now stands at R2,2 trillion, or R2 200 000 000 000 — a rather large chunk of cash that the taxpayer needs to service every year.

In fact, government pays 13c of every R1 it gathers in revenue in interest payments to foreign lenders.

Economists and international financial institutions argue developed countries should not have debt larger than 70 percent of their gross domestic product (GDP) and developing nations — like us — should not have debt exceeding 50 percent of GDP.

South Africa's debt-to-GDP ratio is now standing at 50,7 percent — we owe the equivalent of just more than half of the total number of goods and services we produce annually.

But this wasn't always the case: in 2008/09 government used to have a small surplus on the budget, with a debt-to-GDP ratio of 28 percent. That ratio has increased as government started to struggle to meet its expenditure obligations, forcing the state to borrow more.

And we need to borrow more because we are not making enough money to finance the state.

According to Treasury, the 2017/18 budget amounts to R1,56 trillion, with revenues of R1,41 trillion. The shortfall — R149 billion — will have to be financed by higher taxes and borrowed from foreign markets.

In his Budget speech last week, Gordhan said South Africa's debt situation needs to be stabilised so that future generations aren't burdened by this generation's lending.

But our debt is the fastest growing item in the budget: debt is increasing by 11 percent annually, more than annual increases on basic education (7,3 percent), tertiary education (9,2 percent) or municipal infrastructure (8 percent).

The warning bells are ringing.