Why halting SA’s debt binge is a huge win for the GNU

For the first time since 2008, South Africa’s government debt as measured against our economic output, will no longer rise.

During this time, government debt ballooned from 27% of GDP to 77.9% – one of the steepest rises in public debt across middle income economies. Not one single fiscal year in fifteen saw a reduction. The country consistently spent more than it earned, even during years of favourable commodity prices. The deepest cost of state capture was not only in the institutional decay that characterised that era, it was the mountain of debt that was accumulated to sustain the captured state. This is why stabilising debt matters, as debt is a symptom of both economic stagnation and political mismanagement. 

The National Treasury and Cabinet have now, quite rightly, taken the decision to curtail this mammoth borrowing binge.  

In the 2025 Medium-Term Budget Policy statement, Treasury confirmed that public debt will peak this year and decline from next year onwards. This is a dry headline, and one that is easily overshadowed by daily political drama. However, it is one of the most important actions that the GNU has taken. 

Partly, it’s because of the context: global sovereign debt has risen at an alarming pace, and amongst advanced economies has already breeched 100% of GDP. The International Monetary Fund forecasts that overall global sovereign debt will reach 100% of global GDP by 2027.  

Excessive government debt has historically been characterised as an emerging market problem, but this is no longer the case, as advanced economies are trapped in the cycle of borrowing more to cover rising interest bills, against a backdrop of slowing global growth.  

Now, this matters for South Africa. When world debt increases, the global risk-free rate (the baseline cost of capital) rises too. Countries with weaker fiscal positions are punished as the risk-free-rate rises. That’s because investors are able to get better returns in advanced economies, meaning less need to turn to formerly high-yielding emerging markets. 

This results in higher borrowing costs, more currency volatilty and declining investor confidence in smaller and emerging economies. 

In 2025, South Africa faced a choice. We could have continued to drift along with the rising global tide of debt, or deliberately swim against it. We chose the latter. By committing to peak debt now, we are signalling something critical to potential investors: our country does not intend to become a high-risk borrower. In a world facing more fiscal instability, we needed to move to protect our economy from being repriced upwards in the global risk hierarchy. 

When the cost of borrowing rises, the consequences affect every South African. It affects loan repayments, it affects the ability of small businesses to get credit, and it affects the cost of financing critical infrastructure. For the state itself, it determines how much of the national budget is swallowed up by interest payments instead of being spent on critical government services in policing, healthcare, education or trains, roads, dams, hospitals or schools. 

Vicious cycle

When a developing country’s debt approaches its national income, a vicious cycle sets in. Firms and markets stop committing to long-term capital because they fear future debt-related instability. Lenders refuse to lend or demand sharply higher interest rates to compensate for the higher risk they are taking. Eventually, these higher rates choke off growth. Slower growth then reduces tax collections, which widens the deficit and forces more borrowing.

This cycle feeds on itself as a kind of fiscal death loop. This is what economists refer to as a “debt-interest spiral”. It is the trap that has consumed countries from Latin America to Southern Europe. Escaping it is costly and avoiding it is far wiser. If we had allowed debt to drift as it has for the past 15 years, we would have fallen into this trap. 

Once a country breaches debt-to-GDP above 80%, it becomes extremely difficult to turn it around without extreme cuts to critical services, painful tax hikes, and in the final reckoning, a call to the IMF as lender of last resort when a balance of payments crisis strikes.  

Peaking debt is therefore not an end point. It is the end of drift, so that our country can finally begin its long climb out. Debt stabilisation is a necessary (but not sufficient) platform for faster growth through lower borrowing costs and investor confidence. But without it, no reform agenda can succeed. 

South Africa has now taken the first step. It is the responsible step; it is the right step. In a world hurtling towards higher debt and greater fiscal volatility, we have quietly chosen a different path. That decision was not accompanied by much political drama or attention, but it is a decision that shows foresight, and it is a critical one for the precious stability it will give our country.

_{Top image: Finance minister Enoch Godongwana and his deputy, Ashor Sarupen. Gallo Images/Brenton Geach.}