Economist Dawie Roodt has advised South Africans to take their money out of the country amid looming downgrades which would send the economy into another recession.
Speaking to IOL following the release of the auditor general’s report on the financial health of state-owned entities last week, Roodt said that the country is in dire straits.
The reports showed that irregular expenditure in South Africa increased by 55% since 2016 to R45.6 billion and could still rise to R65 billion as 25% of those audited acknowledged that they had incurred irregular expenditure, but could not say how much.
This, Roodt said, exacerbated the deteriorating economic situation in the country where, simply put, we can no longer afford to incur these costs.
“This is the taxpayers’ money that is being misspent, which means that the state needs to cut back on its expenditure. This country is in dire straits,” he said.
The South African government needs to cut spending by between 6% and 8% in the next year, which simply won’t happen, Roodt said.
“We’ve reached the end of the line. Pushing the economy into recession is the only option. The best advice I give to my clients is take your money out of the country,” Roodt said.
Roodt’s position echoes sentiments expressed by many other economists and analysts, who say that South Africa is on a downward trajectory, with a rating cut to full junk status an inevitability.
From the low-growth, high unemployment trend that has persisted for almost a decade, the economy has also been wracked by political scandals, policy uncertainty, and very real threats to the country’s independent banks.
In finance minister Malusi Gigaba’s latest budget speech, he conceded that the country is effectively running out of money, with no political will to cut back spending – and a looming threat of a tax revolt putting a damper on ideas to hike taxes.
Analysts at Anchor Capital said in a report that inefficiency and corruption has broken consumer and business confidence, and ratings agencies have taken note.
“It is highly unlikely that we will retain our current ratings for the next 12 months and we need to adjust our base case to be that South Africa will be kicked out of the WGBI government bond index,” the group said.
The expectation should be that rates will gravitate towards 10.25% and the rand towards R15.00 to the dollar at some point over the next year.
After being kicked out of the World Government Bond Index, there will be a forced sell-off of at least R100 billion – with the outlook very negative, considering that the South African government appears content to ignore the growing crisis, Anchor said.