Determinants of public debt in South Africa

Odhiambo, Mark

Determinants of public debt in South Africa

Thesis / Dissertation

2026

Publisher

University of Cape Town

Department

School of Economics

Faculty

Faculty of Commerce

Abstract

Public debt, including both domestic and foreign obligations, poses significant risk to economic stability, particularly in developing countries such as South Africa. Public debt has been increasing in developing countries. The debt-to-GDP ratio in South Africa has been increasing in recent years, with total gross loan debt of national government debt reaching 73,4% of GDP by the end of 2023, this highlights the need for a deep understanding of the factors contributing to debt accumulation. Despite this need, this area of study has received limited attention in existing literature for South Africa. This study seeks to fill the gap in literature by examining the determinants of public debt in South Africa using quarterly data from 1990Q1 to 2023Q4, focusing on both the total debt and its domestic and foreign components. In addition to this, the study specifically focuses on fiscal variables as to ascertain how government policymakers can control debt accumulation and strengthen debt management strategies. Using the Autoregressive Distributed Lag (ARDL) approach to cointegration, this research explores the relationship between public debt and key fiscal and macroeconomic variables. The study also incorporates the effects of major global events, such as the 2008 Global Financial Crisis (GFC) and the Covid-19 pandemic. The findings indicate that government revenue plays a crucial role in reducing both total and domestic debt, while increased government expenditure is associated with higher levels of debt, particularly in the same categories. Government deposits are found to have a long-term negative relationship with foreign debt. The relationship between inflation and domestic debt is shown to be complex, with both positive and negative impacts. The analysis further reveals that the Global Financial Crisis increased domestic debt, and the Covid-19 pandemic has exacerbated foreign debt through lagged effects. This paper not only contributes to the limited literature on the determinants of public debt in South Africa but also provides policy recommendations. These policy recommendations underscore the importance of enhancing revenue collection and prudent expenditure management among other insights.

Keywords

public debt

economy

Reference:

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Masters

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