Africa-Press – South-Africa. The ANC-led government has avoided raising a significant amount of foreign debt, which has helped the country avoid a debt crisis in recent years.
Data from the Reserve Bank’s latest Quarterly Bulletin shows that foreign debt remains relatively low as a share of South Africa’s total debt stock.
Foreign debt is valued at R577.7 billion and has decreased by R32.8 billion year-on-year as the government redeemed some of the debt it owes the International Monetary Fund (IMF) alongside some US dollar-denominated debt.
This sum, while substantial, is a small fraction of the government’s total debt burden of R5.82 trillion as of the end of June 2025.
Around 13% of South Africa’s government debt is held in foreign currencies, with much of that being in US dollars, euros, or with the IMF.
This is extremely low compared to many other African countries and emerging markets, which do not have the luxury of raising debt in their own currency.
The government’s ability to raise debt in its own currency is crucial, as many emerging markets and African states have collapsed due to an over-reliance on foreign debt.
Typically, these countries are not able to raise debt in their own currency as their financial markets are relatively underdeveloped and shallow.
In contrast, South Africa has relatively deep capital markets for an emerging market that are well-regulated and highly sophisticated.
Raising debt in a foreign currency exposes a country to significant risks in the form of exchange rate fluctuations and external shocks.
Exchange rate fluctuations are the most significant risk, as a sudden drop in the value of the local currency can result in significant financial pressure.
A weakening domestic currency means that a country’s debt obligations become more expensive to repay in local terms, even if the principal amount remains the same in the foreign currency.
For most countries, where tax revenue is collected in the local currency, this can lead to a drastic increase in their debt burdens and interest payments, potentially crippling the government financially.
Foreign currency debt can also make a country vulnerable to events outside of its control, such as geopolitical instability, war, and the financial health of other countries.
These shocks can result in capital flight, weakening the local currency and forcing interest rates higher. This can lead to a sudden stop where the country is unable to get new foreign funding.
South Africa has managed to avoid these risks by issuing the vast majority of its debt in rands through its local capital markets.
The country’s total foreign debt can be seen in the graphs below, followed by a breakdown of the currencies in which this debt is held.
South Africa’s saving grace
South Africa’s saving grace in this regard has been its highly sophisticated financial markets, which have been able to absorb a growing share of the government’s debt.
This has enabled the state to raise debt in rands rather than in other currencies, resulting in far greater financial stability than some of the country’s peers.
Even as foreign investors have left South Africa’s capital markets, local financial institutions have been able to pick up the slack.
Efficient Group chief economist Dawie Roodt explained that South Africans should not really be concerned with the level of debt the government holds in foreign currencies.
“The foreign exchange reserves held by the Reserve Bank are more than sufficient to pay off South Africa’s foreign debt,” Roodt said.
“The one thing the ANC did not break was the local financial system by going on a borrowing binge overseas and raising debt in foreign currencies.”
“The reason why they did not raise too much money abroad was that we have this well-developed financial system and markets in South Africa. It was relatively easy for them to borrow money in South Africa.”
However, this ease has resulted in the local financial sector becoming increasingly exposed to one institution – the government.
This presents a threat to financial stability on its own, with the local financial sector at risk of becoming over-exposed to government debt.
“Foreign debt is not our problem. People say we are running to the IMF for loans, and we do borrow some money from them, but that is not the issue,” Roodt said.
“The IMF has only been used to assist countries that run out of dollars, and that is not our problem in South Africa. Our problem really is that we have too much rand-denominated debt that is crowding out private-sector borrowing.”
The Reserve Bank has repeatedly warned that local banks and institutions are increasingly exposed to government debt, risking South Africa’s financial stability.
The central bank has warned in several editions of its Financial Stability Review that the local financial system is at risk of becoming increasingly unstable as it becomes more exposed to a single entity – the government.
A higher concentration of government bonds on domestic financial institutions’ balance sheets also inhibits their capacity to absorb financial shocks.
It may also lead to increased volatility and low-liquidity episodes in the domestic bond market, impairing price discovery and deteriorating trading conditions in the rest of the financial market. In turn, this would reduce the domestic financial system’s overall resilience.
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