{"id":833576,"date":"2025-07-31T13:14:48","date_gmt":"2025-07-31T11:14:48","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=833576"},"modified":"2025-07-31T13:14:54","modified_gmt":"2025-07-31T11:14:54","slug":"south-africa-heading-for-a-serious-crisis-2","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business-opinion\/833576\/south-africa-heading-for-a-serious-crisis-2\/","title":{"rendered":"South Africa heading for a serious crisis"},"content":{"rendered":"\n
South Africa\u2019s economy is under severe pressure, and economists are worried that the country’s debt-to-GDP ratio is heading to crisis levels.<\/p>\n\n\n\n
South Africa\u2019s GDP has averaged about 1.1% growth over the last fifteen years, dropping to just 0.7% over the past decade.<\/p>\n\n\n\n
With South Africa\u2019s population growing at around 1.5% per year, South Africans are getting poorer on a per capita basis with each passing year.<\/p>\n\n\n\n
Now the country faces another year of sub-1% growth, while the National Treasury struggles to stabilise debt, which has escalated to the worst levels on record.<\/p>\n\n\n\n
Growth has been hit by multiple compounding factors, including, but not limited to:<\/p>\n\n\n\n
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Poor performance of major state-owned entities like Eskom and Transnet <\/li>\n\n\n\n
Heightened and widespread corruption in the state<\/li>\n\n\n\n
Poor government economic policies that do not promote growth<\/li>\n\n\n\n
Black swan events like the COVID-19 pandemic, the Russian invasion of Ukraine, and other geopolitical tensions.\u00a0<\/li>\n<\/ul>\n\n\n\n
Weak economic growth, coupled with insatiable, undeterred and escalating government spending, has forced the National Treasury to search for other funding sources.<\/p>\n\n\n\n
This has led to added pressure on taxpayers\u2014paying some of the highest direct and indirect taxes, globally\u2014and increased borrowing.<\/p>\n\n\n\n
As a result, South Africa\u2019s debt-to-GDP ratio has risen dramatically over the last decade, from 45% in 2015 to 77% in 2024.\u00a0<\/p>\n\n\n\n
Developing economies like South Africa are generally recommended to have a debt-to-GDP ratio of 60%, as heightened borrowing increases the risk of default. <\/p>\n\n\n\n
A default on debt would cause severe panic in domestic and international markets, with South Africa seen as an unsafe place for investment.\u00a0<\/p>\n\n\n\n
National Treasury has assured markets over many years that the government is working to stabilise its debt and bring the ratio lower. However, it has consistently failed to do so, with the rate pushing higher.<\/p>\n\n\n\n
In what economists have described as a “doomed trajectory”, the 2025 Budget again confirmed that previous intentions to lower the ratio failed.<\/p>\n\n\n\n
Instead, the state will again increase borrowing in 2025\/26, pushing debt up to 77.4% of GDP\u20141.2 percentage points higher than the previous budget.<\/p>\n\n\n\n
Finance Minister Enoch Godongwana repeated the claim that the country would ultimately stabilise its debt-to-GDP ratio at 76.7% of GDP by 2027\/28, but economists aren’t buying it.<\/p>\n\n\n\n
Renowned economist Dawie Roodt remarked that \u201cevery year the finance minister says the country will stabilise the debt-to-GDP ratio, but not yet, he will do it next year.”<\/p>\n\n\n\n
“When next year comes, he says, not yet, next year.\u201d<\/p>\n\n\n\n
Roodt said that South Africa is heading for a financial crisis if it does not act on its fiscal debt trajectory, but there is no indication that this is going to happen.<\/p>\n\n\n\n<\/a><\/figure>\n\n\n
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