Renowned economist Dawie Roodt said each South African owes around R70,000 more than they think they owe.
Roodt was referring to South Africa’s ballooning debt, which has been increasing at an alarming rate in recent years.
South Africa’s current debt-to-gross domestic product (GDP) ratio is 73%. In nominal terms, the country owes around R5 trillion.
“That means every South African owes around R70,000, which the Minister of Finance incurred on their behalf,” Roodt said.
The situation is set to become much worse as the country’s fiscal deficit this year will be around 6% of GDP.
Fiscal deficit is the term used to describe a shortfall in the government’s income compared to its spending.
In South Africa, the state is spending far more than it gets in, which means it has a growing fiscal deficit and needs to borrow money to make ends meet.
“Revenue is under pressure, and the state’s expenses are bigger than the Finance Minister initially expected,” Roodt said.
At the current trajectory, Roodt expects the debt-to-GDP ratio to reach 76% in the current financial year and increase to 80% the year after that.
“A debt-to-GDP ratio of 80% for South Africa is getting into dangerous territory,” Roodt warned.
The growing debt levels mean South Africa is spending more money on servicing the interest on state debt. It will ultimately result in high inflation levels, stifling economic growth.
“Very soon, the private sector is going to demand much higher returns on the increasing risk for funding the growing state debt,” Roodt said.
“Even the South African Reserve Bank is concerned about the growing amount of state debt the banking sector is funding.”
Roodt highlighted three things the government needs to do to reduce the debt burden and improve the state’s financial position.
- Grow the economy. However, South Africa’s current macroeconomic policies will not lead to economic growth.
- Spend less money. However, spending less money on people is not politically palatable and, therefore, unlikely.
- Privatise state-owned enterprises. The government can sell state-owned companies before they are worthless.
The problem with all these interventions is that it goes against the socialist policies of the government.