Treasury’s plan to tackle excessive government spending

South Africa stepped up its debate about adopting a binding rule to control government borrowing in a nation where debt-service costs consume a fifth of tax revenue.

The Treasury released a 33-page discussion document on Wednesday alongside the annual budget, laying out the arguments for a so-called fiscal anchor to cap loans and bolster confidence in strained public finances.

South Africa’s debt-to-gross domestic product surged to 74% of GDP in 2024 from 24% in 2008. The Treasury didn’t suggest a timetable for discussions or make a recommendation but left no doubt that the country has to take action to get its finances in order.

“Without intervention, high debt levels will constrain economic growth, deter investment, and continue to elevate borrowing costs,” it said.

While the Treasury has championed a binding anchor to provide a sustainable long-term path for public finances, South African politicians, including Finance Minister Enoch Godongwana, have voiced reservations about handing influence over policy to non-elected technocrats.

South Africa’s current fiscal discipline is provided by running a primary budget surplus, where revenue exceeds non-interest expenditure. But the goal of keeping public debt stable isn’t a legal obligation.

Wednesday’s paper outlines two main options: A numerical fiscal rule that sets explicit limits on debt or deficit levels or a so-called parliamentary procedures model based on principles with which to judge the sustainability of fiscal policy. 

The Treasury discussed the pros and cons of both approaches without picking a winner and was clear that doing something was better than nothing.

“We should not ask whether a fiscal anchor would solve the problem of South Africa’s unsustainable fiscal position, but whether an appropriately designed anchor would make it more likely that fiscal policies would become more sustainable,” the paper concluded.

“Framed this way, the evidence seems broadly favourable: While countries violate the terms of their fiscal rules relatively frequently, overall, countries with fiscal anchors have somewhat better fiscal outcomes than countries that do not.”