South Africa

South Africa running out of money

Enoch Godongwana

Renowned economist Dawie Roodt warned that South Africa is running out of money and facing a difficult time for the next five years.

Speaking to Nuuspod, Roodt said local governments are falling apart, state-owned enterprises (SOEs) are collapsing, and the state’s deteriorating finances.

Local governments are important to the economy as new businesses rely on these authorities to operate. However, basic services like water, electricity, and roads have deteriorated.

Most municipalities are mismanaged, corrupt and without any realistic chance of being turned around.

Another problem is that Eskom is dying, with the private sector increasingly relying on alternative energy production to survive.

Eskom’s debt burden of R420 billion is too much to handle, and it struggles to meet electricity demand.

The same goes for other SOEs, like the South African Post Office and Transnet, which struggle to fulfil their mandate and support the economy.

The third big challenge is the state’s finances, which are rapidly deteriorating without any significant interventions to stem the decline.

Roodt said South Africa’s fiscal deficit would be much larger this year than what Finance Minister Enoch Godongwana budgeted for.

“The state’s expenses are going to be much larger than expected, and economic growth much smaller,” he said.

There are a few reasons for the growing fiscal deficit –

  • The salary bill for civil servants is larger than budgeted because they received above-inflation increases. This is set to continue with an election year in 2024.
  • The government gave more money to failing SOEs than expected. This will continue, especially with the state planning to take over a large part of Eskom’s debt.
  • South Africa’s tax collections are under pressure because the economy is not growing.
  • Income from mining is declining because of a downturn in the commodity cycle and problems with South Africa’s rail and port services.

“South Africa’s fiscal deficit for 2023 is set to be between 6% and 6.5% of gross domestic product (GDP), much higher than the minister’s expected 4%,” Roodt said.

“The minister said they want to stabilise South Africa’s debt level at 70% of GDP, but it has already increased to 72%.”

“I expect South Africa’s debt to increase to 75% of GDP by the end of the year and reach 80% of GDP by the end of 2024.”

Dawie Roodt
Efficient Group chief economist Dawie Roodt

He explained that many countries have lost an appetite for South Africa’s sovereign bonds to finance this growing debt.

The state, therefore, increasingly relies on local banks and asset managers to buy its debt. However, it comes at a premium as these institutions demand higher returns for the increased risk.

It has reached such concerning levels that Reserve Bank Governor Lesetja Kganyago has warned that it is starting to put banks’ balance sheets at risk.

Roodt warned that this party could end when private institutions decide not to fund the state’s increasing debt levels.

This, in turn, will lead to increased long-term interest rates and, finally, increased inflation, with the government printing more money.

“The economy is in trouble, and the government cannot fix it because they are the people who caused the problems in the first place,” he said.


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