An Empirical Analysis of the Impact of Public Debt Service Costs on Social Expenditure in South Africa

Abstract

This study investigates the impact of public debt service costs on social expenditure in South Africa, focusing on three categories of social expenditure, namely, government education expenditure, government health expenditure and government social protection expenditure. It addresses the challenge of financing debt service costs while maintaining social expenditure. The study employed annual time series data from 1994 to 2024 and the autoregressive distributed lag (ARDL) technique to examine the effect of public debt service costs on social expenditure. The results reveal that debt service exhibits a negative and statistically significant impact across all three categories of social expenditure under consideration in the long run and short run in South Africa. Moreover, the results reveal that public debt has a negative relationship with all three categories of social expenditure. The exchange rate and revenue were found to have a positive relationship with all three categories of social expenditure under consideration. Urban population was found to have a positive relationship with government education expenditure and social protection expenditure. These findings underscore the need to focus on reducing the fiscal pressure stemming from increasing debt service costs, while upholding social expenditure. It is recommended that policymakers focus on debt stabilisation and reduction, thereby easing the crowding-out of social expenditure.