South Africa heading for financial disaster

South Africa is heading for a financial crisis as the government continues to increase its borrowing to fund a growing deficit while it continues to increase spending. 

This is feedback from renowned economist and Efficient Group director Dawie Roodt, who told the SABC that the Finance Minister made his Medium-Term Budget Policy Statement (MTBPS) in an extremely difficult context. 

“The context is that the fiscal accounts are in very deep trouble, the debt levels have reached record highs, and the state just keeps on borrowing. Revenue is under tremendous pressure for various reasons, and spending is higher than expected,” Roodt said. 

“In the meantime, the South African economy has been doing quite badly, and there is an election around the corner.”

The only real option that Godongwana had was to borrow more money and get the country into even deeper trouble, said Roodt. 

“It is called a debt spiral or fiscal cliff,” Roodt explained. “If you keep borrowing money, then your debt increases, which is already R4.5 trillion. We cannot keep on borrowing.”

“Not only are we borrowing a lot of money, we spend this money on current expenditure. It is like borrowing money on your mortgage to buy groceries. That is very irresponsible.”

“If we continue on this trajectory, we are going to get into trouble, and we are heading for some sort of financial crisis,” Roodt said. 

The cumulative main budget deficit in the first five months of the 2023/24 fiscal year amounts to R238.4 billion, or R254.4 billion, including Eskom debt relief. 

This is much higher than the deficit of R160.7 billion in the same period in 2022/23.

The Treasury also said total revenue growth was 8.7% year-on-year in August, while total expenditure grew at a stronger pace of 9.2%.

To finance this growing budget deficit, the government has had to increase the amount of debt it issues.

From the beginning of August, the National Treasury has increased the issuance of government debt by R2 billion to over R14 billion per week. 

“We have painted ourselves into a corner here. The only real alternative for the Finance Minister is to start cutting spending, and politically, that is extremely difficult to do,” Roodt said.