A time series analysis of the sustainability of government debt in South Africa

Abstract

Background The COVID-19 pandemic found many governments around the world, and South Africa, in particular, unprepared financially; hence, they had to borrow. This paper aims to assess the sustainability of government debt in South Africa from 1997Q4 to 2023Q4. Method Data was collected from the South Africa Reserve Bank. The empirical investigation is conducted using an Autoregressive Distributed Lag (ARDL) framework. Results Bound cointegration technique outcome showed that there is cointegration between government expenditure and government revenue, meaning that there is fiscal sustainability in South Africa during the period of study. Further empirical appraisal using the ARDL technique showed that the relationship between domestic debt and primary balance is positive and significant. This means that debt is becoming unsustainable in South Africa. This study recommends that the government’s domestic debt needs to be reduced. Originality To assess the sustainability of debt, using cointegration and the ADRL techniques. Also, the debt variable was examined by looking at both the domestic and foreign debt.