South Africa heading towards a serious financial crisis
Efficient Group chief economist Dawie Roodt warned that South Africa is heading towards a serious financial crisis and needs to make significant changes to avoid it.
Roodt made these comments during an analysis of Finance Minister Enoch Godongwana’s 2025 Budget, tabled on 21 May 2025.
This May budget came after two previous versions were withdrawn because of disagreements within the governing coalition over taxes.
The key change is that it does include the widely rejected VAT hike. This aligns with the minister’s commitment to maintaining it at 15%.
The latest budget proposes a few tax measures to raise R18 billion in 2025/26 and provide R1 billion tax relief in 2026/27.
No adjustment is made to personal income tax brackets and rebates, which means more tax will be collected through bracket creep.
The general fuel levy has an inflationary increase, which will raise petrol and diesel prices in South Africa.
There are above-inflation increases in excise duties on alcohol and tobacco products, also known as sin taxes.
Government debt is expected to stabilise at 77.4% of GDP in 2025-26, slightly higher than the 76.2% projected in March 2025, mainly due to lower nominal GDP.
The National Treasury further projected economic growth of 1.4% in 2025, down from the 1.9% real GDP growth projection two months earlier.
The gross borrowing requirement is projected at R588 billion in 2025-26. That’s marginally higher than the R582 billion projected in March.
It is seen falling to R434.3 billion in the 2026-27 financial year and then climbing to R587.7 billion in 2027-28.
Gross government debt is expected to increase from R5.69 trillion in 2024-25 to R6.09 trillion in 2025-26 and R6.82 trillion in 2027-28.
“The fiscal strategy remains on track so that the government spends less on debt-service costs and more on critical public services,” Godongwana said.
Dawie Roodt’s analysis
Roodt said the fact that government debt is increasing again is ridiculous, as the government continues to kick the can down the road.
“Every year, the finance minister says he will stabilise the debt-to-GDP ratio, but not yet and that it will happen the next year,” he said.
“However, the following year, he makes the same promise, saying that he will reduce the debt the next year.”
Roodt warned that South Africa is heading towards a financial crisis if the government does not address the fiscal debt trajectory.
He said South Africa’s debt trajectory is out of hand for two reasons.
- The finance minister spends too much money.
- The South African economy is not growing fast enough.
Roodt explained that the latest budget plans increased state expenditure, meaning it is an expansionary budget.
This is good for economic growth in the short term, but risks the country entering a fiscal debt trap in the long term.
Roodt added that the finance minister’s growth projection of 1.4% this year is too optimistic and would likely be lower than 1%. That means state revenue will come under pressure.
“The poor economic growth is primarily due to the wrong macroeconomic policies in South Africa,” Roodt said.
He said the latest budget contains nothing new, which is bad news for South Africa’s financial situation.
“Unless we make some significant changes, we are heading for some serious financial trouble,” he said.
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