The economy is on the ropes, and it will force a change in SA

It is a well-known fact that government’s debt-to-GDP ratio is going to be around 56% by the end of March 2019. Debt from state-owned enterprises is likely to add another 35% by the end of the month.

Moreover, South Africa in the 1980s had prescribed assets, which meant that 53% of one’s pension had to be invested in government and SOE bonds. This was done so that the government had access to money for the debt repayments it had to make. Iscor was en route to being privatised as the socialist Nats needed cash – although it took another five years before it happened in 1989. Lux Air brought competition on some European air routes against SAA. Private airline Flitestar could operate domestically as SAA didn’t have the cash for more planes.

Now South Africa’s total debt burden is about 3% higher as a ratio of GDP and the country is heading to the same repayment concerns as then. Like a weapon of mass destruction this will blow up government’s ability to borrow more and, with tax rates higher than most countries, the impact on government’s ability to spend will be felt.

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