Over the past decade, the interest rate that South Africa pays on its debt has consistently been above the economic growth rate. Mathematically, this means that debt grows as a percentage of GDP. It becomes a “vicious circle”.

Higher debt makes investors and ratings agencies nervous, meaning the interest rate they are prepared to pay for our debt rises. This increases borrowing costs and hurts investment spending, making fiscal consolidation (and counter-cyclical fiscal policy) more and more difficult, making the fiscal position worse and raising the sovereign risk premium. The interest rate rises again and the cycle continues...

Subscribe now to unlock this article.

Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).

There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.

Cancel anytime.

Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.