Africa-Press – South-Africa. Renowned economist Dawie Roodt said South Africa is heading for a serious financial crisis due to the country’s unsustainable debt levels.
Roodt shared his views on the South African economy and the country’s trajectory at the recent Biznews Conference in Hermanus.
He told delegates that South Africa’s national government debt-to-GDP (gross domestic product) ratio is around 77%.
However, this only tells part of the story. The state is also responsible for a significant portion of the debt of state-owned enterprises and local authorities.
Fifteen years ago, most state-owned enterprises and local authorities were able to cover their expenses without incurring debt.
However, they have been run into the ground in recent years, accumulating high debt levels due to mismanagement and overspending.
When their debts are combined with those of the national government, the country’s debt-to-GDP ratio is approximately 85%.
Even more concerning is that the country’s debt is rising at an annual rate of around 2% to 3% of GDP, which should raise alarm bells.
“We are heading for a serious financial crisis because South Africa’s debt levels are around R6.5 trillion. That means every South African owes R100,000 more than they think,” he said.
Roodt explained that South Africa is spending money on things that will not result in economic growth, and it does so by incurring debt.
“South Africa is borrowing long-term money, and the Minister of Finance is spending it on short-term current expenditure, essentially destroying capital,” he said.
He stated that capital formation in South Africa is approximately 15% of the country’s GDP. This needs to be increased to 25%.
Capital formation is the increase in a country’s stock of capital goods, which are long-term physical assets.
These long-term assets include items such as machinery, buildings, and infrastructure used to produce other goods and services, rather than being consumed immediately.
“The Minister of Finance is reducing South Africa’s capital formation by destroying capital. The state is the biggest destroyer of capital in the country,” he said.
“We have low levels of savings, and a large part of these savings are destroyed by the government.”
7.9 million personal income taxpayers fund 28 million grant recipients
Efficient Group chief economist Dawie Roodt
Roodt explained that South Africa is in an unsustainable financial situation due to the structure of the economy and tax base.
The 2025 Budget revealed that South Africa’s 7.9 million personal income taxpayers fund 28 million grant recipients.
However, these taxpayers also include many government employees. This means that approximately 30 million South Africans rely on a state income.
The biggest revenue stream for the state is personal income tax. Here, 978,140 South Africans, or 1.5% of the population, pay 60.9% of all personal income tax.
Even more concerning is that only 235,542 South Africans, or 0.4% of the population, pay 33% of all personal income tax.
South Africa’s latest tax statistics further reveal that only 1,051 companies pay 72.3% of all company income tax in the country.
In other words, companies with taxable income greater than R100 million constituted 0.1% of the total number but contributed 72.2% of taxable income and 72.3% of assessed tax.
South Africa is already over the Laffer curve with these two sets of taxes, which means that further tax increases will not produce additional tax revenue.
“The state’s finances are in very deep trouble and we are heading for a financial crisis in South Africa,” Roodt said.
He said the only way South Africa can fix its disastrous financial situation is through economic growth. “There is nothing else we can do,” he said.
The way to achieve this is by protecting private property rights, encouraging free trade, and having sound money.
“When you do these three things, I can guarantee you that the South African economy will grow,” Roodt said.
South Africa’s core economic indicators
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