Abstract:

Over the years, the world has experienced increased and persistent levels of high government debts. This situation has been fuelled by the sluggish economic growth rates and weak revenue collections, particularly in the sub-Saharan region. Using the auto-distributive lag (ARDL) model, the study investigates the key drivers of government debt in South Africa from 1994 to 2017. Findings of this study revealed that there is long-run relationship between government debt and government expenditure, real GDP, inflation and real interest rates, with government expenditure, real GDP and interest rates being the key drivers of government debt in South Africa. Government debt has had a negative impact on economic growth and inflation. In the short run, there are no significant interactions between inflation, real interest rates and government debt. To reduce government debt, the South African government should lean towards improving its productive capacity, controlling interest rates and eliminating non-productive expenditure. Factors such as bailout spending on non-performing and problematic state entities may be avoided by opening for competition to ease the burden off the state as a sole or main funder.

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