Macroeconomics Forum: Critically engaging South Africa’s debt

“We need to understand South Africa’s position in the global monetary hierarchy and its unique indicators of fiscal crisis which make the debt problem chronic and not acute,”  said Adjunct Professor at the Southern Center for Inequality Studies (SCIS) Michael Sachs at the IEJ macroeconomics forum – Critically Engaging on South Africa’s Debt. He kick-started the presentations followed by Dr. Seeraj Mohamed, Dr. Jo Michell, and Dr. Aninna Katelbrunner. The macroeconomics forum was facilitated by IEJ Economist, Ms. Busi Sibeko.

The macroeconomics forum was aimed at grappling with public debt in South Africa in light of the fiscal strategy adopted by the National Treasury which seeks to achieve debt stabilisation by implementing expenditure cuts and freezing the public wage bill. Given this approach’s negative impact on social services and growth of the economy, the forum provided a platform for progressive economists to explore alternative approaches to debt management, interest rates, growth and the associated risks, opportunities and implications for macroeconomic policy. The following questions were posed to the speakers:

  • What does it mean for South Africa to have ‘sustainable debt’? What role do debt-to-GDP ratios, maturities and interest rates play?
  • How do we understand the intersection between debt and growth?
  • What macroeconomic policies need to be put in place to mitigate against growing debt service costs but without negatively impacting the economy or livelihoods?
  • How does the current macroeconomic framework reproduce the debt burdens we see in our economies?
  • What does a progressive understanding of debt entail? What further research is needed?

Indicators of a debt crisis and possible policy options

Our first speaker, Prof Sachs’ presentation was centered around three main points. Firstly, he argued that the trajectory of South Africa’s debt indicates that it is “chronic” as the deficit is entrenched and interest rates are higher than the growth rate.  Secondly, he showed indicators of how this should be understood as a debt crisis. Lastly, he explored the fiscal policy implications and associated risks.

According to Sachs there are certain conditions that influence South Africa’s debt crisis. Chief among these are persistent colonial structures, lack of economic sovereignty and South Africa’s position in global value chains. In addition, emerging markets pay higher interest rates compared to developed countries. In South Africa this is in a context of decelerating growth. South Africa’s deficit, Sachs argues, predates the COVID-19 pandemic, “It is entrenched, structural and dominated by debt service costs and this has been the case for the last decade”.  In the same period, the real growth rate has decreased whilst interest rates are at a historical high.

In this context, Sachs presented four scenarios, each with its own risks: 1. an accelerating debt with unsustainable service costs; 2. reduction in public spending (austerity) with rising inequality and poverty; 3. rising taxation with failing returns on productivity; 4. compulsory and inflationary financing with financial instability. 

This set the scene for a lively discussion – Are these the only options? Are these risks guaranteed? What policy interventions can resolve this conundrum?

Rethinking the macroeconomic policy framework for structural transformation

Macroeconomic expert, Dr. Seeraj Mohamed, picked up these themes arguing that austerity was a path to disaster and that what was needed was fiscal expansion to stimulate growth.

In particular, Mohamed argued that such spending should aim to structurally transform the economy and support poor households to stimulate demand. Currently, government policies serve to reinforce the status quo and therefore should be challenged. “The government needs to spend more, particularly on poor households through the Universal Basic Income Grant and basic services” he said.

According to Mohamed, there is a link between household stability and macroeconomic stability and a focus on the debt trajectory simply ignores social stability. Household debt has increased. In 2020, Mohamed showed that the level of debt to disposable income was 60%, and debt service costs to disposable income have stabilised at under 10% and this has a negative impact on savings. This is a problem that must be addressed by government spending on poor households.

Spending can also advance structural transformation. The current structure of the economy is highly concentrated and only “extracts rent and destroys value”, resulting in high unemployment, low investment, and declining capital stock. Therefore, it is important to speed in a manner that will  challenge the fincialised mineral energy complex. Mohamed argues that the government has misunderstood the economic challenges the country is currently facing and this is clear from the macroeconomic policy framework which is largely business orientated and within a supply-side neoliberal framework, prioritising ‘structural reforms’.[1] Rather, South Africa faces an aggregate demand problem while fiscal consolidation has contributed to negative growth rates since 2012.

On the question of debt, Mohamed argued that the notion of whether the budget deficit is too high or too low should be determined by  “the  role of fiscal and budgetary policy should play to achieve high employment and capacity utilisation” and not debt-to-GDP ratios. This challenges the current thinking in mainstream economic thinking adopted by the National Treasury and largely supported by mainstream economists.

Associate Professor at the University of Bristol, Dr. Jo Michell. Michell agreed with Sachs that the current public debt position in South Africa should not be ignored due to its distributional effects. Increasing debt service costs have implications for social spending, therefore they have to be addressed in the long term, he stated. However, he agreed that austerity is  not sustainable. There is a need to take a more cautious position that recognises the risks associated with extreme positions but it has to be accompanied by cost-benefit analysis from both those arguing for austerity and those arguing for more government spending. This should involve making forecasts on indicators based on evidence and data.

The potential for monetary and other financing

While some may argue that there are no resources to finance this spending, Mohamed introduced the role of  monetary policy in supporting aggregate demand. This is particularly important in South Africa where there is excess capacity and high unemployment. According to him, this can be done through quantitative easing (QE), which can lower interest rates, restore liquidity and avoid austerity. Most importantly Seeraj argues that QE may offer resources for increased social security.

Dr. Annina Kaltenbrunner – Associate Professor at Leeds University largely agreed with Mohamed on the need for the central bank to play a role in responding to the current debt issue. Kaltenbrunner recognised that there is an increasing legitimacy on the role of monetary financing and this legitimacy should be instrumentalised through the use of QE.[2] Therefore, progressive economists should instrumentalise this legitimacy. However, this should take into account the limitations in the emerging market context. For Kaltenbrunner, schools like Modern Monetary Theory (MMT) largely ignore the constraints that exist in terms of global currency hierarchy and balance of payments.[3]

Speaking from the floor, economist Duma Gqubule argued that there were many other options that could be considered. Gqubule argued the country is unviable, given the unemployment crisis. For Gqubule, the government has resources such as the Public Investment Corporation that can lend to the government at zero cost until the economy recovers. IEJ Senior Policy Specialist and Co-founder, Neil Coleman, added to the lively debate as well calling for a broader discussion on the options on compulsory financing and how these tools may be designed.

Another alternative that Mohamed put forth is wealth taxes. He argued that the share of corporate and income tax should be higher and proposed an annual wealth tax. The IEJ has also proposed tax measures on the wealthy that should be considered in financing a UBIG.[4]

Using an illustrative tool to forecast public debt in the long run, Michell agreed with Mohamed that taxes should be considered as one of the means to address debt, but stated that progressive economists  should have estimates and projections on the proposals and most importantly take into account the global environment. For Sachs, tax may crowd out spending which this tax could be spent on and thereby distribute the burden as opposed to addressing debt sustainably. The accuracy of this would depend on the nature of both the tax and the subsequent spending.

Monetary policy to reduce interest rates

Kaltenbrunner stressed that there needs to be increased coordination between the central bank and fiscal policy overall for developmental goals, this is in line with what Daniel Gabor calls subordinated monetary financing wherein monetary policy is subordinated to fiscal policy.[5]

Kaltenbrunner highlighted the importance of looking at  South Africa’s debt composition in planning measures to lower the interest rate burden. There are capital account regulations that can be undertaken, for instance, withholding tax to lengthen the maturity of foreign investors, outflow restrictions in times of crisis, and domestic funding requirements. Other recommendations orientated towards domestic investors include mobilising “patient” domestic investors through insurance funds and public pension funds. One would need to conduct further research on how some of the measures may be implemented in the South African context.

Concluding Remarks

There are different views on public debt. However, as Neil Coleman argued, there are some commonalities in the policy proposals made during the forum, and getting stuck in ideological views will not help address the current scale of the humanitarian crisis. We need to understand how we articulate the tools to form a coherent policy framework for social policy interventions such as a UBIG without being fixated on the debt trajectory, he said. The proposal of a UBIG for instance may stimulate the economy and help address the humanitarian crisis.

Before closing the macroeconomics forum, Director at the Institute for Economic Justice, Dr Gilad Isaacs, agreed that there is a potential convergence of some of the tools presented to address some of the challenges the South African economy faces. However, Isaacs argued that there were three important elements progressive economists should take into account. Firstly, there needs to be considerations of the limits in monetary financing and these have to take into account evidence and the South African position in the global financial hierarchy. “To what extent can monetary financing be used, what risks exist, and what are the limits?” he asked. Progressive economists would need to provide more evidence for this proposal. Secondly, designing instruments to reduce the cost of borrowing is essential. This would require, as Katelbrunner asked, to understand “who are the bond holders of South Africa’s debt?”. Lastly, it would be important to consider the sequencing of how some of the economic challenges are addressed. Given the real humanitarian crisis, and the regressive structural features in the South African economy, progressives need to unpack how the different instruments in a macroeconomic policy toolkit will help address different objectives. Isaacs concluded the macroeconomics forum by thanking all the speakers and participants for their invaluable contributions. He stated that the forum opened up important questions for further research that can contribute to a progressive macroeconomic policy toolkit grounded on evidence to challenge neoliberal views on debt and current structure of the South African economy. 

[1] Camara, A and Vernengo, M. 2004. ‘Fiscal policy and the Washington consensus: a Post Keynesian perspective’, Journal of Post-keynesian Economics, Vol, 27. No. 27 (Winter, 2004-2005), pp. 333-343. Available at

[2] Gabor, D. 2020. Revolutions without revolutionaries: interrogating the role of monetary financing. Available at

[3] Bonizzi, B Kaltenbrunner, A and Michell, J. 2019. Monetary sovereignty is a spectrum: modern monetary theory and developing countries. Available at

[4] IEJ. 2021. Financing options for a Universal Basic Income Guarantee in South Africa. Policy Brief. Social Security Series #2. Available at

[5] Gabor, D. 2020. Revolutions without revolutionaries: interrogating the role of monetary financing. Available at