South Africa: Will Financial Repression Ever Become South Africa's Get-Out-of-Jail-Free Card?


Faced with a projected debt-to-GDP ratio of close to 100% in five years, the SA government has opted for the tougher, but more sustainable, road to fiscal health: structural change rather than inflating their way out of indebtedness. It's still early days and the temptation to opt for financial repression will, no doubt, be difficult to resist.

As the South African government stares down a debt-to-GDP ratio of close to 100% five years down the line, it will be sorely tempting to consider using financial repression to surmount this debt mountain when the time comes. Developed economies, with debt-to-GDP ratios upwards of 100% as a result of Covid stimulus packages, have already begun to head down this track.

The other option open to government's with heavy debt burdens is to opt for the much tougher path of fiscal austerity and structural reform that the South African government has chosen to pursue. Globally, this alternative in a particularly politically and economically charged environment would likely prove unpalatable and greeted with widespread protests.

Financial repression is a combination of policy choices that enable the government to keep government borrowing costs artificially low. It provides a way out where the ultimate costs...

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