Dawie Roodt warns that South Africa is heading for crisis

Efficient group chief economist Dawie Roodt has warned that South Africa is heading for a very serious financial crisis, with the latest budget not doing anything to change course.

Responding to the budget tabled by Finance Minister Enoch Godongwana on Wednesday (21 May), Roodt said the department offered no surprises and nothing new or unexpected.

However, it did affirm a doomed trajectory for the country, with increased borrowing pushing debt up to 77.4% of GDP—1.2 percentage points higher than the previous budget.

Godongwana repeated the claim that the country would ultimately stabilise its debt-to-GDP ratio at 76.7% of GDP by 2027/28, but Roodt said this was “ridiculous”.

“This has become quite ridiculous,” he said. “Every year the finance minister says the country will stabilise the debt-to-GDP ratio, but not yet, he will do it next year.

“When next year comes, he says, not yet, next year.”

Roodt said that South Africa is heading for a financial crisis if it does not do something about the fiscal debt trajectory, but there is no indication that this is going to happen.

He said there are two reasons why the trajectory is out of hand. The first is that the National Treasury is simply spending too much money.

“The new budget shows that there is again a real increase in state expenditure over the next three years, which means that this budget is an expansionary budget, not an austerity budget,” he said.

While this may boost economic activity in the short term, over the long term, it puts the country on track to hit a fiscal debt trap.

The second, more important reason for the bleak trajectory is that the South African economy is not growing fast enough. This is due to South Africa adopting the wrong macroeconomic policies, Roodt said.

While Roodt acknowledged the new GDP growth estimates from Godongwana at 1.4% for 2025, he said this was too optimistic.

“Growth is likely to be less than 1% this year, and that means revenue will also come under some pressure.”

“Overall, the budget is nothing new. If we don’t make some big changes, we’re heading for some serious financial trouble.”

Budget was generally a flop

Other responses to the budget echoed similar sentiments to Roodt, pointing out how Treasury’s numbers are not quite adding up.

Arthur Kamp, Chief Economist at Sanlam Investments, said that even with spending cuts and revenue raising measures being roped in to lower the debt ratio over the medium term, the risks are evident.

South Africa is operating in a low-growth environment, so the math isn’t adding up, he said.

“Our base case has consistently shown an increase in the government’s gross loan debt ratio over the medium term, albeit a relatively flat trajectory since we incorporate additional expenditure risks.”

“Although the National Treasury’s intent cannot be faulted, the medium-term outlook for the debt trajectory is still at risk,” he said.

Over the medium term, National Treasury expects the debt ratio to ease to 76.7% of GDP by 2027/28 as the main primary budget surplus improves.

However, Kamp noted that in the past 100 years, sustained significant primary budget surpluses have been rare, making this a risky bet for the finance department to bank on.

“Ultimately, until growth lifts to reduce unemployment, spending demands for an increased safety net and other support measures are expected to remain high,” he said.

One good thing about the budget

While the budget itself doesn’t contain much in the way of good news, there is one aspect of the whole thing that will allow markets to breathe a sigh of relief.

Frank Blackmore, the lead economist at KPMG, said the budget was underwhelming, but remarked that at least there was a budget at all.

This is at the very least a positive indicator to markets that the Government of National Unity (GNU) is holding firm and still working together.

Following the tabling both the Democratic Alliance (DA) and the African National Congress (ANC) issued media statements in support of what was presented.

This means that the budget process is likely proceed smoothly, without a need for a fourth attempt.

DA member of parliament for finance, Mark Burke, who challenged the March budget in the portfolio committee and took the matter to court, expressed “cautious support”.

“We see this as a pathway to a National Budget which we should be able to support when it comes time to vote,” he said.

While not by any means a perfect budget, the DA said that it was workable in the context of the economic reality in South Africa, and committments to review expenditure could turn the tide in the years ahead.

Similarly, the ANC acknowledged that the state was operating on limited resources, but stuck by the figures presented, promising fiscal consolidation.

Ahead of the budget, Bank of America said that the presentation would be a litmus test for the GNU, noting that the political response was almost more important than the numbers themselves.

“This budget is more important for signalling the GNU temperature than for any forecasts it may contain,” the group said.

However, Roodt was less impressed, saying that even though the budget will have the support of the GNU, it just means the political parties will continue to vote in favour of increased spending, increased taxes and more debt.