To Investors,
Is South Africa’s national debt under control?
There are three factors to look at to be able to answer that question honestly:
Debt-to-GDP
Debt Service Costs
Cost of Debt Rollover
Debt-to-GDP
Generally, most people want to quote the national debt amount as a percentage of GDP for a country, then use that figure to prognosticate about the state of a country’s national debt. Well, for South Africa, debt as a percentage of GDP is around ~77%; but there are additional factors to consider in this category.
If a country that issues its own currency, like how the U.S. issues and controls the U.S Dollar and South Africa issues and controls the Rand, that issuing country can generally issue as much debt as it wants because it can print as much money as it wants to “pay back” debt issued through government bonds. The trick however, is to maintain faith and positive sentiment towards your currency and your government bonds by managing debt levels and not issuing so much currency that it erodes the value of the currency, its purchasing power, and the faith in government bonds.
So in conjunction with the national debt-to-GDP ratio I think one of the additional factors to consider is how much of the country’s national debt is held by external investors. The reason being that the percentage of government debt held by external investors also helps us understand the vulnerability that South Africa has to large debt sell-offs in times of economic uncertainty (periods that all countries go through).
According to the South African Reserve Bank (SARB), 75% of national debt is held by local investors. Local investors tend to understand the domestic economy much better, meaning South Africa doesn’t face as high a risk of global investor panic-selling.
While having only 25% of foreign investors holding South African bonds may be slightly comforting, in my view this is why I believe that the South African Rand continuously takes a beating during times of market uncertainty. The Rand is more freely available and in addition to issues inherent to South Africa, the Rand is also treated as a proxy for emerging market uncertainty.
Debt Service Costs
16% of budget spending for 2024/2025 is marked for debt service costs according to South African national treasury data, up from 7.5% in 2009. A worrying increase when considering that this is higher than spending on Health, Economic Development, and Defence (Peace and Security), looking at the expenditure breakdown below.
Additionally, South Africa’s deficit amounted to -R332.4 billion in 2024, and debt service costs are estimated at R382.2 billion (5% of GDP). While noteworthy, this is still not enough data to opine on the state of South Africa’s national debt.
Cost of Debt Rollover
Government debt is usually rolled over or refinanced, meaning that the government issues new debt to pay old debt, because the principal bond amount comes due at maturity for government bonds, and the standard practice is refinancing because the government may not have enough money to pay back tens of billions of rands at each maturity event.
This works fine if refinancing can be done at lower interest rates. And the opposite is true.
10Y South African Government Bond rates have started to come down significantly year to date, from a 2025 high of 11% in April to around 8.7% – meaning that the new debt issued is at lower interest rates.
That said, if we zoom out over the last 25 years, according to the chart below from the SARB, South Africa’s 10-year government bond yields have consistently traded above the emerging market average, reflecting the higher risk investors associate with the country. The chart shows that during periods of fiscal discipline and economic stability — such as the mid-2000s when South Africa ran a budget surplus — the risk premium narrowed sharply. However, episodes of political uncertainty, weak growth, and fiscal slippage since 2009 have kept the risk premium elevated. In short, while emerging market yields have broadly declined over time, South Africa’s persistently higher rates signal that investors still demand extra compensation for holding South Africa’s debt.
However, there are a number of recent wins that will hopefully build and grow positive sentiment towards the South African economy…
Last Friday South Africa was officially removed from the FATF Grey List. This was a signal to global financial markets that South Africa’s financial regulatory and compliance standards remain strong, and will boost South Africa’s standing as one of the more credible financial jurisdictions in Africa, which will attract foreign investment.
Although a number of skirmishes are arising, South Africa’s Government of National Unity remains somewhat stable, with no “government shutdowns” or major disruptions from political clashes between different parties.
Electricity supply has continued to become more reliable as loadshedding has dramatically improved – meaning less disruptions in economic activity.
Increased infrastructure investment is a positive indicator of economic activity in South Africa, and will strengthen global investor sentiment towards South Africa.
Inflation in South Africa remains subdued, at around 3% for 2025 prints, much lower than the SARB’s 4.5% target.
Lower inflation is positive for consumers who benefit from lower increases in costs of goods and services, as well as lower borrowing rates. The lending rate in South Africa has steadily declined from 11.75% in August 2024, to 10.75% currently – supported by the SARB steadily lowering repo rates.
In contrast to negative news and commentary littered on our news feeds and social media timelines, there are a number of positives to remain upbeat about regarding the South African economy.
Now back to the question of whether South Africa’s national debt is under control; my response would be that it’s not easy to answer yes or no. The reason being that managing the financial status of an “emerging” economy appears to be like swimming against the tide. The media blows everything out of proportion, and the free-floating Rand gets pummelled during every sustained risk-off episode in global markets. But we should rest assured that the South African national treasury and the SARB are well aware of their responsibility to maintain global investor confidence in South African markets. What are your thoughts?
On my journey to becoming a master capital allocator, one lesson down, a billion more to go.
Hope you all have a great day
-Mansa
