National debt rises

SA’s national debt, as measured by gross government debt as a percentage of GDP, is estimated to reach levels last seen in the early days of SA’s democracy, when the Mandela administration dealt with the hangover from apartheid.

Years of economic sanctions ravaged the economy and led to SA’s debt being downgraded to junk status. This saw the ratio of debt-toGDP peaking at 48% under finance minister Chris Liebenberg in Nelson Mandela’s second year in office.

It then fell sharply under the tenure of Trevor Manuel as finance minister, eventually bottoming at 22% in 2008 and 2009, just as the global financial crisis hit. When Finance Minister Malusi Gigaba stands up to deliver the budget speech in February 2018, National Treasury estimates debtto-GDP would have reached 47%.

Manuel had a boss who understood the importance of managing the Treasury prudently to run down the cost of borrowing and lower the quantum of money paid to service the debt. Gigaba doesn’t have the same luxury.

In his first press conference as finance minister, Gigaba reiterated government’s commitment to fiscal consolidation – in other words, managing SA’s affairs in such a way that debt doesn’t spiral out of control. His problem is that, in the Zuma years, debt service costs have risen from R57 billion in 2010 (Zuma’s first year in charge), to a projected R162 billion by the end of March next year, equivalent to 13% of all tax revenue collected.

What is prudent? Maximising debt while keeping the cost of it at its lowest sounds like the logical conclusion. But the real magic is being able to allocate the money in such a way that the marginal returns – whether they be social or economic outcomes – exceed the cost of the money borrowed.

And that is an extremely hard argument to make, given the current leakages in the system.