While nations with developing economies often do need to seek funding to expand and build things such as infrastructure to support economic growth, there is a fine line between sensible financial risks and creating down-stream debt burdens that sink economies.
In Subsaharan Africa, there has been a litany of financial disasters that still continue to plague the region and cause untold suffering due to mis-spent finances not producing the anticipated economic upside, often due to incompetence and corruption.
As per the latest projections from the IMF’s World Economic Outlook (April 2025), South Africa’s general government gross debt stands at 79.6% of GDP. This indicates that Africa’s largest economy has already taken on a much higher debt burden that the average for Africa, using Sub-Saharan Africa as the standard proxy in IMF regional data, that holds an average is 61.51% debt to GDP ratio.
This level of debt is unfortunate and is closely linked to the awful track record of the South African government, that has been plagued by corruption and mismanagement, that has destroyed the upside that should have been attained, and replaced it with a massive debt burden future generations will have to pay.
Econ Bro, a Nigerian Economist does a deeper dive into the matter below:
Future Generational Debt Looming
South Africa is preparing to accept a $475 million loan from the African Development Bank (AfDB); officials tell citizens that new rail links and stronger power grids will follow. The promise sounds bright. Many see cranes, concrete, and new jobs. Bond contracts, interest schedules, and maturity tables stay in the background. Murray Rothbard warned that public debt hides cost behind paperwork. Every borrowed dollar or Rand becomes a tax on the labour of someone who is not at the table.
Elementary pupils who now learn arithmetic will earn their first pay checks in the early 2040s. A slice of those checks will move to the creditors who sign the AfDB deal today. No voice from those classrooms influenced the contract. Ludwig von Mises placed voluntary exchange at the heart of social order. Consent is the test of justice. A liability placed on citizens who never agreed breaks that test and wounds the link between work and reward.
Financially Overburdened Societies do not Thrive:
Basic fairness is clear in daily life. A parent does not load a child with a fifty-kilogram sack of cement and ask the child to carry it for life. The AfDB loan does the same in ledger form. Numbers replace concrete bags, but the weight remains. Young adults who learn the origins of their tax deductions lose trust. They see a state that spent before they could vote and now demands repayment. Cynicism follows and domestic saving falls.
Sound finance in the Austrian tradition rests on consent and clear visibility of cost. When a project must be paid from current taxes the burden appears at once. Citizens weigh the plan against the sacrifice they feel that year. Only projects with proven value survive this test. Debt removes the signal. Politicians announce benefits and push the bill past the next election. Spending rises beyond the level a fully informed public would accept. Rothbard urged total rejection of such practice.
Scarce capital faces a new demand when government borrows. Funds that service public bonds cannot reach private workshops, farms, and digital networks. Interest rates adjust upward to attract enough voluntary saving. Entrepreneurs with marginal projects lose credit. Goods that would have pleased future consumers never appear. Society receives a single visible structure and loses many unseen advances. Families who try to borrow for a small business face higher rates and sometimes give up. Innovation slows in ways no statistic can fully capture. Misallocation of scarce resources follows the path Mises traced in his work on economic calculation.
Debt Creates Unnecessary Taxes and Destroy Returns
An additional danger arises when tax revenue proves thin. Officials may ask the central bank to create new currency and cover the coupon payments. Purchasing power slips for every person who holds cash or a fixed wage. The hidden levy copies the hidden tax of debt itself. Both shift property without open vote. Both weaken the link between effort and return, and both erode trust in contracts.
Supporters of the AfDB loan argue that future growth will exceed the interest schedule. Recent history suggests caution. South African public works are often plagued by cost overruns and slow maintenance. Electricity company liabilities, passenger rail gaps, and unfinished municipal water projects stand as warnings. The incentives that produced those overruns remain. Forecasts of superior management therefore lack firm ground.
The prudent path calls for fiscal restraint. Government should finance programs with current revenue. If taxpayers refuse an extra levy the plan lacks proven merit. Private entrepreneurs can build rail lines or power plants when profit forecasts justify the risk. Investors who misjudge absorb the loss. Children remain free from inherited obligations. Civic trust deepens when every expenditure follows visible consent. A constitutional ceiling on debt, annual interest reports per worker, and automatic sunset clauses on borrowing can sharpen discipline.
Better Fundamentals Not More Debt Required
South Africans possess talent and resources enough to raise living standards without leaning on the unborn. Secure property rights, reliable courts, and open entry in energy, transport, and telecom will draw capital from across the globe. Growth that rests on voluntary exchange carries no hidden chain. A society that loves its children hands them opportunity rather than an obligation. The AfDB loan prints glossy brochures. The liabilities last decades. Living within present means protects honest money and preserves liberty for the next generation.
About the Author: Econ Bro (@EconBreau and @EconBreau2 on Twitter/X) is a Nigerian Austrolibertarian economist and an apprentice at the Mises Institute. Under the organisation name “The Freedom Institute” he teaches individual liberty, personal responsibility, private property rights, free markets, and sound money to mostly young people across Nigeria. Econ Bro is an Associate of the Free Market Foundation.
