South Africa rushing towards a serious disaster

South Africa is heading towards a serious financial disaster with mounting debt and excessive state spending. An urgent intervention is needed to prevent a crisis.

This is the warning from Efficient Group chief economist Dawie Roodt, who said that South Africa is headed for a recession, and all the bad things that come with it.

South Africa’s state finances have deteriorated significantly over the last sixteen years due to overspending and poor economic growth.

The state has run consistent deficits, funded through debt. The debt-to-GDP ratio increased from 26% in 2009 to around 76% in 2025.

However, this only tells part of the story. Roodt said South Africa’s real debt-to-GDP ratio is closer to 95% when factoring in state-owned enterprises and local authorities.

Due to the rising debt burden, South Africa will spend R424.9 billion on debt-service costs this financial year.

Over the medium-term budget framework, debt servicing costs will consume 22 cents of every rand of tax collected.

To address this problem, Finance Minister Enoch Godongwana said they are taking steps to ensure a sustainable public finance position for South Africa.

He said it includes protection against unforeseen shocks while fostering an environment conducive to increased investment and accelerated economic growth.

Their plan includes investing in growth, anchoring fiscal policy, increasing revenue, and long-term budget planning.

He said the government’s latest fiscal strategy calls for achieving milestones in rebuilding the public finances over the next year.

“In 2025/26, public debt will reach its peak, stabilising at 76.2% of GDP. This achievement is attributed to a growing primary budget surplus,” he said.

“Consequently, debt-service costs will peak in the current year, stabilising at 21.7% of revenue, and subsequently decline.”

He added that the consolidated budget deficit is projected to narrow from 5% of GDP this year to 3.5% of GDP in 2027/28.

South Africa has an economic growth problem

There is a problem with the state’s plans. Godongwana’s forecast that South Africa’s real economic growth will increase to 1.9% in 2025 is too optimistic and well above other estimates.

The International Monetary Fund (IMF) cut its economic growth forecast for South Africa to just 1%, as US President Donald Trump’s tariffs wreak havoc on financial markets.

Roodt also said South Africa’s economic growth this year will be lower than initially anticipated and expects GDP growth of 1%. However, with further headwinds, it can be much lower.

“This growth is very bad, as the finance minister depends on economic growth to fund South Africa’s large state machinery,” he said.

Without the National Treasury’s expected 1.9% economic growth, the country will not meet its planned revenue collection.

If the South African economy grows only by 1%, as the IMF and Roodt expect, the 2025 Budget will have a big hole.

The government’s deficit will be higher than anticipated, forcing the state to borrow more money and further increase the already-high debt-to-GDP ratio.

Roodt warned that the country will face a financial disaster unless the government addresses this unsustainable debt burden.

“One day, we will see the South African bond market collapse. The bond market keeps everybody on the straight and narrow,” he said.

He warned that when the bond market experiences turmoil, yields will rise to between 15% and 25%, sending shockwaves through the local financial market.

The rand will significantly weaken, negatively affecting the financial market. South African banks will be the hardest hit.

“Insurance prices will fall. Equity prices will fall. All South Africans will suddenly become much poorer,” Roodt explained.

The South African Reserve Bank (SARB) will be forced to increase interest rates as inflation will increase due to higher petrol prices.

“The economy will go into a tailspin. There will be much weaker economic growth, a deep recession, and all the negative effects that go with it,” he said.

“That is what we are heading towards if we do not turn South Africa’s dismal fiscal situation around.”