DETERMINANTS OF PUBLIC DEBT IN SOUTH AFRICA: A REGIME-SWITCHING APPROACH

Abstract

This investigation investigates the causes of South Africa's public debt. In South Africa, rising public debt is accompanied by sluggish economic growth, high unemployment, high inequality, and proportionally high government expenditure. The study utilizes time series data collected from secondary online sources, namely the South African Reserve Bank, Quantec Easy Data, Statistics South Africa, and the World Bank, from 1990 to 2020. The study utilized a Simple Switching Regression Model and Granger Causality test to examine the determinants of South Africa's public debt. Government deposits, business confidence, inflation of consumer prices, government revenue, and unemployment are significant determinants of public debt in both Regime 1 and Regime 2. Government expenditure was discovered to be a negligible determinant of public debt in Regime 2, whereas the Gini coefficient is only an insignificant determinant of public debt in Regime 1. According to Granger causality, public debt has a causal effect on public debt. The study provided recommendations such as reducing South Africa's excessive reliance on public debt to fund fiscal stimulus.