oa Africa Insight - The budgetary limits to borrowing for development in South Africa

Volume 21, Issue 3
  • ISSN : 0256-2804



Governments of developing countries, in seeking to improve the standards of living of their populations, need development capital. These governments' own funds are seldom sufficient to cover the total expenditure, and, in most cases, are barely sufficient to cover recurrent expenditure. Most independent African countries north of the Limpopo managed to cover recurrent expenditure and reached partial financial independence about ten to twenty years after gaining independence. For capital expenditure, the own funds of practically all developing African countries are supplemented to some degree by financial grants from foreign donors. Any additional needs have to be financed by borrowing on the financial markets by way of loans, issuing bonds and drawing on other credit facilities. The borrowing government of a developing country is therefore faced with the policy decision: how much may safely be borrowed to achieve the highest affordable development effect, without its being confronted by an inordinately high debt burden that will tie the government's hands in fulfilling its normal functions? In other words, development policy must be firmly linked to debt policy and both must be planned and co-ordinated.

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