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The aim of this paper is to analyse the relationship between public debt, corporate debt service costs and private capital formation in South Africa.

To capture the long-run characteristic of investment, the study adopts the Fully Modified Ordinary Least Squares approach and tests for cointegration using Hansen (1992)'s Parameter Instability test.

We find that private capital formation increases in domestic debt and decreases in external debt during the pre-crisis period. However, during the period post the Global Financial Crisis, we find evidence of domestic public debt crowding out private capital formation, whereas external debt crowds-in capital formation. Debt service costs are found to reduce investment due to the effect of the debt overhang throughout the period under analysis.

The paper has important implications for macroeconomic policy. In particular, there is need for deleveraging and allocation of a higher proportion of debt to public infrastructure expenditure which has complementary effects on private investment.

Debt overhang signal that South African firms could be over-leveraged, which hinders future growth prospects. Firms that face high levels of debt should consider debt restructuring.

Empirical studies undertaken to explore this relationship have yielded contradicting results suggesting that the relationship between public debt and private investment is heterogeneous depending on a given economy or prevailing macroeconomic environment. In particular, existing research does not provide evidence on whether recent increases in public debt in South Africa have led to crowding-in or crowding-out of private investment. This paper therefore contributes to empirical literature on the impact of public debt on private investment within a small open economy.

This study evaluates the impact of government social protection interventions on households’ welfare in South Africa.

The study uses survey data comprising 393 observations and the multinomial logistic regression technique to analyse the effect of government interventions on households’ welfare. For robustness purposes, a negative binomial regression model is also estimated whose results corroborate the main results from the multinomial regression model.

The study’s findings show that government economic interventions through social protection significantly reduce the likelihood of a decrease in household income or consumption. COVID-19 grant/social relief of distress grant, unemployment insurance, tax relief and job protection and creation are all significant in sustaining household income and consumption.

The findings have policy implications for social development. Specifically, the findings support the use of government social protection as a safety net for low-income groups in South Africa.

The study presents preliminary evidence on the effectiveness of several measures used to ameliorate the COVID-19-induced recession within the South African context.