There is no debating that South Africa’s fiscal finances are in a dire state.
The expansion in government spending that immediately followed the 2007-2008 global financial crisis has been supplanted by a decade of loose fiscal policy and sub-par macroeconomic growth. Before accounting for the inevitable realisation of Eskom’s contingent liabilities to the fiscus, South Africa’s “lost decade” has resulted in the doubling of government debt — from 26% in the 2008-2009 fiscal year to 57% (and counting) at present.
Against a backdrop of weak government finances and sickly economic growth there is disquiet about the prospect of South Africa approaching the International Monetary Fund (IMF) for financing.
Yet the IMF — and the government — said earlier this month that the country hasn’t reached the point where a bailout is needed.
Two key questions need to be answered to determine whether these fears of having to turn to the IMF are well founded: Does South Africa fail a debt sustainability assessment and is South Africa’s capital market access at imminent risk?
First, central to determining South Africa’s debt sustainability over the medium term is an examination of the country’s debt profile and debt burden indicators.