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Alternatives to Austerity: Dealing with Rising Levels of Public Debt

For the past several years, the South African government has implemented and gradually increased the depth of what can only be described as austerity measures. From 2013, consecutive national budgets have prioritised significant cuts in, and limitations on, government expenditure for basic service provision, public infrastructure, employment stimulation and social protection.

The primary reason provided by the government for implementing harsh austerity is the growing levels of public debt, that is resulting in the government running out of resources. In this context AIDC produced a research publication evaluating the sustainability of South Africa’s debt and proposing alternative policy measures for public debt management that protect constitutional rights. In addition, an assessment was made of the government’s public debt management strategies. The publication goes further to propose the development of more democratic and sustainable public debt management strategies. Some of the key findings include that there are growing levels of public debt. Currently, gross government debt is estimated at more than R4.7 trillion and is expected to exceed R5 trillion by the end of the year. These trends are congruent with growing public debt levels globally – making South Africa’s debt levels very much in line with that of other emerging economies.

The total level of public debt is higher that the government debt as it includes the debts of SOEs and other levels of government. These debts have primarily been incurred during the “state capture” years, during which corruption at SOEs was extremely prevalent. In the research study, we analysed the trends in the growth of public debt and assessed its sustainability. 

Our new publication focuses on the development of South African public debt and also provides an analysis and discussion of alternatives to austerity for dealing with rising levels of debt. We also evaluated who the debts are owed to and on what terms they have been incurred.

While the public debt levels have grown substantially, the majority of the debt is denominated in local currency. Given that the majority of the debt stock is in Rand coupled with a very favourable balance sheet (high levels of foreign exchange reserves, the cash balances of the South African Reserve Bank) means that slashing public spending to manage growing levels of debt is unnecessary.

We also argued that austerity as a public debt management strategy has historically resulted in widening inequalities. But not only does it deepen inequalities it is also ineffective in ensuring public debt management. A key factor is that budget cuts results in a contraction of the economy and the risk of growing debt-to-GDP levels over the medium-term. As such, we argued that South Africa is stuck with a failed development model that is not able to deliver growth and employment. The current model continues to perpetuate inequality, concentrating wealth in the hands of the mining houses, the financial sector, and politically connected individuals. A transformative development path is needed – austerity will not cure these fundamental problems but instead exacerbate them.

The October 2023 Marrakesh Declaration to End Austerity states that more than 6 billion people are suffering from austerity, so-called ‘fiscal consolidation’, amid a cost-of-living crisis. These cuts undermine crucial public services, meaning that it impacts primarily the poor and unemployed, especially women. Therefore, it’s crucial to explore alternative solutions for dealing with public debt.

Our report sheds light on new perspectives and offers fresh insights into sustainable solutions to tackle public debt in South Africa. 

We hope that you find our report informative and valuable. Please do not hesitate to contact us if you have any questions or require further information. Read the full report below. 

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