Deputy Minister Tells The Common Sense That South Africa Has Reached a Structural Shift in Its Financial Trajectory

Ashor Sarupen, the deputy finance minister, told Talking Sense that South Africa has entered a pivotal phase of fiscal consolidation, with debt stabilisation, primary budget surpluses, and a new inflation target.

Click here to watch the whole podcast or read more about it below.

*The Common Sense publishes two primary weekly podcasts. Talking Sense is a one-on-one interview show, where we aim to bring on a wide variety of interesting guests to engage in longer form interviews in which they are given the opportunity to explain who they are and what they know. The second podcast, Makin Sense features a panel of South African-born analysts scattered across the world, from Washington to London, Bremen and Johannesburg, bringing you world-beating global economic, political, geo-strategic, and national security analysis of the major events shaping the world and South Africa's place within it.

The Common Sense has previously reported that the mini-budget presented last week was a vast success for the country and had greatly raised confidence while triggering its first credit rating upgrade in two decades.

According to Sarupen, South Africa spends about R2 trillion a year. Around 60% of that total goes to health, education, the social wage, housing, and safety services. Debt-service costs take up just over 20% of expenditure.

Sarupen said that public debt currently stands at roughly R6 trillion, equal to around 78% of GDP. That compares with 27% in 2008. Sarupen attributes the debt surge to state capture, repeated bailouts of State-Owned Enterprises, corruption-linked leakages, and a long shift toward consumption-heavy spending. However, Sarupen stressed that in South Africa’s favour is that most borrowing is in local currency, with 75% of issuance absorbed by domestic markets and 90% denominated in rand.

Sarupen said the mini-budget likely marks a peak in South Africa’s debt-to-GDP ratio. This, he said, is essential to avoid a fiscal cliff where the state can only afford salaries and interest payments. Peaking the debt curve also reduces the country’s risk premium, lowering future borrowing costs. With global sovereign debt expected to reach 100% of world GDP, Sarupen explained that the Treasury sees South Africa’s consolidation as a relative advantage.

Sarupen also stressed the success of South Africa having achieved a primary surplus – meaning that the government now earns more in revenue than it spends if interest spending is eliminated. According to the deputy minister, South Africa is one of the few countries in the world: “to have run primary surpluses now, three years in a row”, reversing more than a decade of deficits. Sarupen said: “to move from the space of extreme deficits and primary deficits to primary surpluses and narrowing the overall deficits, that's pretty big.” The Treasury now expects the full budget deficit to halve into 2029.

Sarupen stressed the importance of the adoption of a 3% inflation target, replacing the previous 3% to 6% band. He said: “Low and stable inflation is good for the economy. It is good for the country. It is good for living standards. It is very good for the living standards of poor people. We live in a country where we have 16 million people on social grants. That's a lot. It is a huge amount. Now, if you want the revolution to come round, just erode the value of their meagre earnings, which is social grants and hustling to get by [Inflation directly erodes the living standards of especially poor people].”

On South Africa’s broader reform prospects, Sarupen said that a series of structural reforms outside the fiscal framework are also underway, and that the speed of reform is increasing. Eleven private freight rail slots have been allocated. The Durban Terminal 2 port concession has cleared legal obstacles. Electricity supply stability has improved, though pricing stability and the completion of unbundling remain outstanding.

Click here to watch the full interview.