South Africa’s money is finished

Economist Dawie Roodt warned that South Africa’s significant debt burden and the fast rate at which it is increasing mean the country is heading for a financial crisis.
Roodt told The Phumlani Majozi Show that public debt is around 75% of South Africa’s gross domestic product (GDP).
However, if the debt from the state-owned enterprises and local authorities is added to public debt, which it should be, the debt burden is closer to 90% of GDP.
He explained that the finance minister would have to bail out many state-owned enterprises and municipalities that are in dire financial positions.
“Every year, the debt increases by 2% to 3% relative to GDP. That debt needs to be funded. Somebody needs to lend money to the state,” Roodt said.
“One day, they will say, ‘You owe too much money. You will not be able to repay me. I do not want to fund your deficits anymore’.”
“This is the financial crisis I am talking about. That day will come if we continue on this trajectory.”
Roodt warned that South Africa was heading for a financial crisis as the state owed too much money.
“We cannot afford to spend like we do. The money is ‘finished and klaar’. There is no money,” he told Majozi.
Currently, the government spends over R1 billion a day servicing its debt, as the interest on its R5.21 trillion debt pile has skyrocketed in the past decade.
Roodt is not the only economist who is warning that the government should rein in spending and reduce debt.
Sean Segar of Nedgroup Investments urged the government to view the debt burden over the long term and ensure it can be managed sustainably.
He emphasised that the government “needs to kickstart growth” as this is a sustainable way to reduce debt-to-GDP.
Citadel’s Chief Economist, Maarten Ackerman, agreed with Segar, saying the rising debt-servicing costs sound the alarm over a looming debt spiral.
South Africa “is in a tight corner, and if we don’t stimulate growth, South Africa will come close to another debt spiral…this time with higher interest rates”.
International factors increase risk in South Africa

Finance Minister Enoch Godongwana revealed that an increase in inflation, interest rates, and the rand exchange rate significantly influences South Africa’s debt.
Godongwana told Parliament that the impact of rising interest rates in the United States on debt service costs is twofold.
- Firstly, rising US rates directly affect the sovereign’s dollar-denominated debt, which constitutes about 10% of the total debt portfolio.
- Secondly, US rates serve as a base rate for domestic borrowing costs, meaning that, all else being equal, higher US rates translate to higher domestic debt service costs.
Debt levels, new borrowing, and macroeconomic variables such as interest rates, inflation, and exchange rates determine debt service costs.
A sensitivity analysis of debt and debt service costs to changes in macroeconomic variables illustrates the impact of these factors.
Godongwana used the example of a 1 percentage point increase in inflation and interest rates, along with a R1 depreciation of the rand against the dollar.
This will result in a R50.7 billion increase in South Africa’s gross loan debt and a R7.9 billion increase in debt service costs.
To mitigate these risks, the National Treasury has set a strategic benchmark for external debt at 10% to 15% of the total debt portfolio.
Godongwana added that the current level of foreign currency-denominated debt is below 10%.
The share of short-term debt, such as treasury bills and floating-rate notes, increased marginally in response to the higher US interest rate environment.
“It should be noted that the Federal Reserve is expected to begin cutting interest rates later this month, bringing an end to the rising interest rate cycle seen previously,” Godongwana said.
The finance minister said the government continues to finance its gross borrowing requirement prudently and sustainably within its strategic risk benchmarks.
The financing strategy enables the government to employ a range of instruments to meet its borrowing needs.
This is done while reducing risks associated with refinancing and currency fluctuations and containing aggregate borrowing costs.