Dawie Roodt warns South Africa is heading for disaster

South Africa is heading for an economic and financial disaster due to the ongoing war in Iran, which is set to reignite inflation and slow economic growth. 

If the war is prolonged, the effect on the government’s budget, its debt load, and interest payments could be severe. 

Coupled with the likelihood that interest rate cuts will be delayed and potentially reversed, South African households will also come under strain. 

However, if the war is resolved relatively quickly and oil tanker traffic recovers quickly, the impact could be much less severe. 

This is feedback from Efficient Group chief economist Dawie Roodt, who explained the potential impact of the war in Iran on South Africa’s economy and the government’s finances. 

Speaking at the latest BizNews Conference, Roodt said it is unclear how long the war will last and how quickly oil supply from the Middle East can be restored to normal levels. 

“What I do know is that there was an enormous shock to the system. To the global economy and to South Africa from rising oil prices,” Roodt said. 

“We will see upward pressure on inflation. What matters is not necessarily the level of the oil price, but rather how long it stays elevated.” 

Even if oil does not stay above $100 per barrel for an extended period, Roodt said the likelihood of interest rate cuts in the coming months has fallen to zero. 

“Without a doubt, we will not see two 25 basis point cuts in the coming months, as was predicted earlier. That is now not going to happen because of the shock of the oil price on the South African and global economy,” Roodt said. 

This means the expectation that more consumer spending would be freed up, boosting economic growth and the government’s tax revenue, is not going to come to fruition. 

Furthermore, the period of easing debt-servicing costs for the government has effectively come to an end, with further reductions from falling bond yields delayed. 

Roodt’s concerns echo those of Standard Bank, which still predicts two more interest rate cuts in 2025 for South Africa. 

However, the bank said these have been delayed by the war in Iran and may not happen should the conflict be protracted. It had previously expected three 25-basis-point cuts in 2026. 

Government finances under pressure

Roodt explained that the biggest impact from the war in Iran is likely to be on the government’s finances, with the National Treasury’s forecasts underpinning the 2026 Budget now thrown out the window. 

However, the government does have some buffers built in to minimise the impact of such external shocks on the national accounts. 

If the war is prolonged, this buffer is unlikely to be sufficient to ensure the National Treasury’s forecasts regarding government debt hold. 

Roodt explained that the main impact will come in the form of slower economic growth, which translates into lower tax revenue and negatively impacts the state’s debt-to-GDP ratio. 

The National Treasury has historically overestimated South Africa’s economic growth and has been forced to revise its forecasts downwards throughout the financial year. 

“The Finance Minister told us the economy would grow 1.4% in 2025. It grew 1.1%. He now forecasts 1.6% growth in 2026, but we are not going to get there,” Roodt said. 

“That means the debt-to-GDP ratio is likely to exceed 80% in this financial year and the following year. This means that when we thought the debt load would stabilise this year, it may only happen next year if we are lucky.” 

This means that many forecasts based on this assumption are unlikely to hold, including South Africa’s chances of further credit rating upgrades. 

“With weaker economic growth, we will see a further increase in unemployment and a further increase in poverty in South Africa,” Roodt said. 

He explained that South Africa could be much more insulated against external shocks if it got its own house in order. 

If the economy were growing at a faster rate and the government’s debt burden were far lower, the impact from the war in Iran would not be as severe. 

Much of South Africa’s economic challenges, in the form of expensive electricity, logistics bottlenecks, and water shortages, are within its control and are not impacted by external factors. 

“But, we have this massive state that is supposed to look after citizens’ interests. But, we have a parasitic state, and we must stop this,” Roodt said.