I come from a very different culture, but have experience dealing with friendships that have run its course.
Based on my experience, I think you are asking the wrong question. I strongly advise against having a direct conversation with that person about the issue. Not only would such a conversation be difficult and leave a bitter aftertaste, but it also might seriously alienate the person if it went badly. He might feel offended and betrayed and do something you don't even think about, during the conversation or later. He has had mental health issues and such people are especially unpredictable.
Instead, I suggest adopting a simple strategy aimed at making him conclude on his own that the friendship has run its course.
First, never initiate contact with him on your own initiative. Never call him and never send him a message if it's not a response to his message.
Second, if he messages you, be slow to respond, succinct, and passive:
He: Hi, how are you doing?
You (a day later): Hi, I'm fine. Just
overburdened by work and responsibilities
Third, if he calls you, answer that you are very busy right now / today / this week / this month. Complain about having things to do and deadlines to meet. Keep calls short.
If he insists on spending time together, say something to this effect:
This month is very difficult. Let me look in my schedule. We can meet
in four weeks, on MM-DD. I am sorry but I really can't do it earlier.
When you meet him on the scheduled day, behave friendly but make the conversation as little interesting and enjoyable to him as you can. Talk about things he is not interested to learn about---your projects, professional interests, etc. Use terms and jargon he doesn't really understand, and don't really try to explain them. Or explain them using even more terms he doesn't understand. Mention your achievements to make him feel envious. Ask him uncomfortable questions, but friendly and without offending him. And do all of these naturally, talking with him as if he were from your world, and thereby making him realize he isn't. Be sure to refrain from explicitly criticizing him in any way, as otherwise he'll argue and defend himself. Let him make conclusions on his own. People accept only their own conclusions.
By the way, if you do so, you will actually do him a favor. He might finally realize that he is wasting his life, and make changes for the better.
Remembering the discomfort of the meeting, he probably won't even ask you to meet with him again, but if he does, you can just say,
"Nah, I can't. I don't have time. I barely get time to sleep. You
know, we're friends and you can always ask me for advice or anything;
my life is just too busy for hanging out."
Or somewhat more frankly:
"Nah, I don't feel like. It didn't work for me last time. You know,
we're friends and you can always ask me for advice or anything; I just
don't feel like hanging out."
Say this friendly, just as you would refuse a cup of coffee. After this, each time he asks you to hang out with him, just repeat what you said before.
If it doesn't work, which is highly unlikely, you can just stop interacting with him. You did all you could, so you can just ignore his calls and messages. If he confronts you face-to-face, take the initiative and ask him a couple of uncomfortable questions, but friendly and without offending him, then briefly repeat that you don't feel like hanging out, then say you have an urgent thing to do, then say bye and go away.
You can adjust the strategy for your particular circumstances, but I hope you get the idea. The idea is to make him lose interest in you without offending or alienating him. It works because when people experience discomfort from something, they quickly stop seeking it, and you can easily make him experience discomfort without doing anything he might see as hostile or unfriendly.