INVESTIGATING THE KEY DRIVERS OF GOVERNMENT DEBT IN SOUTH AFRICA: A POST-APARTHEID ANALYSIS

Lerato Mothibi,Precious Mncayi

doi:10.34111/ijebeg.20191112

Abstract

Over the years, the world has experienced increased and persistent levels of high government debts. This situation has been fuelled by the sluggish economic growth rates and weak revenue collections, particularly in the sub-Saharan region. Using the auto-distributive lag (ARDL) model, the study investigates the key drivers of government debt in South Africa from 1994 to 2017. Findings of this study revealed that there is long-run relationship between government debt and government expenditure, real GDP, inflation and real interest rates, with government expenditure, real GDP and interest rates being the key drivers of government debt in South Africa. Government debt has had a negative impact on economic growth and inflation. In the short run, there are no significant interactions between inflation, real interest rates and government debt. To reduce government debt, the South African government should lean towards improving its productive capacity, controlling interest rates and eliminating non-productive expenditure. Factors such as bailout spending on non-performing and problematic state entities may be avoided by opening for competition to ease the burden off the state as a sole or main funder.

Highlights

One of the most prominent global macroeconomic developments in recent years has been the upsurge and perseverance of large deficits and government debt
The results further indicate that the correlation between LRINT and LCPI is the weakest, while the correlation between gross domestic product per capita (GDP) and LRINT is the strongest compared to the other variables
Over-borrowing and high government debts undermine growth and development. This has been the case in South Africa, as, despite the surge in government debt, the country still faces challenges of low growth, unemployment and inequality

Summary

Introduction

One of the most prominent global macroeconomic developments in recent years has been the upsurge and perseverance of large deficits and government debt. These developments have elevated fears regarding debt sustainability with the potential consequences of debt monetisation that initiates inflation and austerity measures that bring about extensive economic costs (Pirtea, Nicolescu & Mota, 2013), making countries susceptible to economic crises (Mendoza & Oviedo, 2004). There has been a concern that many countries in the sub-Saharan region lack fiscal discipline, one of the main contributors to the region’s growing government debt. Various governments have assumed liabilities acquired by state-owned enterprises (SOEs)

Methods

Results

Conclusion