Africa-Press – South-Africa. The United States, like South Africa, has a massive debt problem, with both countries spending around 20% of their annual budgets servicing these costs, eating away at money better spent on public services.
This is according to Farzana Bayat, Portfolio Manager at Foord Asset Management, who notes that the widening fiscal gap in the US mirrors that seen in South Africa during the Zuma era.
During this time, state spending escalated to unsustainable levels, with Bayat warning that “once public finances unravel, restoring discipline becomes extraordinarily difficult”.
This reflects another similarity between South Africa and the United States: politicians are showing little to no appetite for fiscal restraint, looking for other ways to foot the bill.
For South Africa, this resulted in a major budget snafu in 2025, where the National Treasury unilaterally decided to hike the VAT rate by two percentage points to cover government spending.
When questioned about the VAT hikes, Finance Minister Enoch Godongwana said at the time that austerity measures and budget cuts were not working.
He had long warned that government’s spending would come with consequences, and that the money had to be found somewhere. With no way to rein in state spending, he leaned into tax hikes instead.
This was widely rejected, resulting in the first budget being delayed, the second budget being pulled, and finally the third budget being passed without the VAT hike (but other revenue-generators in tow).
According to Bayat, policymakers in Washington also show little appetite for fiscal restraint.
“Instead of cutting spending, the reflex has been to stimulate growth through lower interest rates. This lack of fiscal discipline is evident globally and represents a significant risk for bond investors,” he said.
Bayat said that the US debt dynamics reflect the end of the “ultra-low interest rate era”, with around 20% of US government revenue now spent purely on interest payments.
“Markets are starting to push back. In April, a tariff-driven risk-off episode saw bond yields rise even as the dollar weakened — the opposite of its typical safe-haven response,” he said.
“It was a warning sign that investors are questioning the sustainability of America’s fiscal position.”
South Africa’s debt trap
Farzana Bayat, Portfolio Manager at Foord Asset Management
Bayat noted that South Africa faces the same headwinds. Government debt has ballooned sixfold in 15 years to almost R6 trillion, yet growth remains anaemic.
Budget revisions underscore the pressure: tax revenues are faltering, households and corporates cannot be squeezed further, and demands on frontline services such as healthcare and education keep rising.
Like the US’s 20% debt payments, R22 of every R100 (22%) in South African tax revenue is spent on servicing debt before a cent is allocated to service delivery.
“Debt stabilisation requires stronger real GDP growth or higher inflation, as both feed nominal GDP,” Bayat said.
“Yet neither is in sight. Growth has averaged just 0.7% over the past decade, with forecasts still below the 2–2.5% required to stabilise the debt trajectory.”
Meanwhile, the South African Reserve Bank’s proposed 3% inflation target risks suppressing nominal GDP further.
“This argues for caution on long-dated government bonds, which are most vulnerable to fiscal drift and weak growth,” he said.
One area of debt in the USA that far outweigh’s South Africa’s problems is the debt-to-GDP ratio, which sits at approximately 122% in 2025.
South Africa’s debt-to-GDP has more than doubled over the past 15 years and the National Treasury expects it to peak in the current fiscal year ending March 31 at 77.4%.
Analysts, economists and ratings agencies doubt that—given that South Africa has consistently missed its own targets in this regard—expecting a peak closer to 80% in 2027.
While South Africa’s debt-to-GDP ratio is much lower than the US’s, it is by no means the whole picture.
South Africa’s debt ratio is considered central government budgetary debt, debt securities, and loans. When considering total public sector debt into account, including contingent liabilities tied to state-owned companies, this balloons to around 130% of GDP.
Source: businesstech
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