Author(s): Redda, E. H.
It is often argued that policymakers, lenders and borrowers regularly face the challenge of determining the optimal level of indebtedness of a given economy. Determining the sustainability of budget is equally challenging. The purpose of this study is to assess the sustainability of public debt and budget deficit in South Africa. In doing so, it aims to provide a deeper understanding of and insight into the fiscal outlook in the medium- to long run. Descriptive statistics, including the mean and standard deviation, were used to assess the sustainability of public debt and budget deficit in South Africa. In addition, stationarity test, Johansen cointegration, vector error correction model (VECM) and Granger non-causality test are utilised to determine whether the current trajectory of public debt and budget deficit is sustainable. The results of the study reveal that the sustainability of public debt and budget deficit is not guaranteed (not sustainable). These challenges become untenable especially within the context of South Africa’s very low level of economic growth projection in the shortto medium term. It is recommended that major fiscal adjustment measures are introduced in the near future in order to avoid major fiscal crises in the future. For example, South Africa may need to relax its business laws, which businesses and investors often criticise for inhibiting South Africa’s full potential.