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South Africa has proposed a new fiscal law in an attempt to shield its public finances from future populist governments as the treasury’s current projections show debt is set to decline for the first time in nearly two decades. Finance Minister Enoch Godongwana framed it as protecting “hard-won gains” at a time when his party, the African National Congress, dominant since Nelson Mandela led it to victory in 1994, can no longer assume it will remain in charge after it was forced into building a coalition following the 2024 election.
Under the draft measure released alongside Wednesday’s budget update, future governments could set their own targets such as debt-to-GDP ratio — a key measure watched by rating agencies — but an independent parliamentary oversight body would check if they were being adhered to. If it was decided that the government had deviated elected officials would have to explain their reasoning. Unlike laws in many other countries, South Africa’s prospective fiscal rules have no prescribed numerical ceiling on debt or spending; rather they would enshrine the principle that governments should keep to their announced plans.
In his statement to parliament, Godongwana said that government debt stabilized at around $366 billion, or 78% of GDP, after rising from around 24% in 2009. He told lawmakers that the budget deficit would start to decline as a proportion of GDP over the next three years. He also announced a last-minute decision to offer a second fuel-price relief package costing $600 million — further help for struggling motorists.
Economists say the numbers are good enough to warrant a credit rating upgrade. Gina Schoeman of Citi says the US bank sees a shift as “probable” but more likely to come in the first six months of next year rather than in the next few weeks.
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South Africa first floated the idea of this fiscal anchor in March 2025, when the treasury published a discussion paper that presented two options: The establishment of a numerical target, which is more conventional, or an approach that weds governments to their own announced goals.
Godongwana’s approach puts him at odds with the IMF, which argued earlier this year that a “fiscal rule, anchored in a prudent debt ceiling” would bolster South Africa’s credibility. But while the idea is becoming more popular in Africa, there is no guarantee that setting a specific target works. Both Ghana and Kenya have missed fiscal targets with the former hit by pre-election slippages in 2024, and the latter suffering under revenue shortfalls, punishing interest payments, and repeated budget overruns.
Tiisetso’s view
The treasury’s effort to lock in the progress in reining in spending rests on an optimistic premise that letting politicians explain themselves will keep them in line. The flaw in the proposed anchor is that South Africa’s fiscal problems have never been short of explanations.
Since the 2009 financial crisis, Africa’s biggest economy went on a spending frenzy, running deficits, racking up debt and offering a rich menu of excuses — ranging from global crises, sluggish growth, state capture and COVID-19. That is not to say these explanations were not valid. But debt rose anyway, from 24% of GDP in 2009 to nearly 80% last year.
The draft law asks future governments to disclose, assess, and explain. Worse still, it requires each administration’s fiscal plan to be “consistent with the electoral mandate.” That’s disappointing. For one thing, imagine an election campaign fought on populist policies such as raising welfare grants and public sector hiring sprees. An incoming government would simply write those ambitions into its fiscal plan in keeping with the proposed measure. A cascade of ratings downgrades will follow, bond market investors would demand higher risk premiums and the economy would take a hit after spending commitments were already made.
Granted, governments bend or break hard numerical laws when politics demand it, as is the case in Ghana and Kenya. In fact, a 90-country study by the Bureau for Economic Research, a South African think tank, shows half of the countries broke their own debt-ceiling rules. If politicians can toss out hard and visible targets, why would anyone expect them to feel constrained by a law that only asks them to explain?
Room for Disagreement
Godongwana argued that the disadvantage with setting specific targets is that they lack flexibility and require well-defined escape clauses if economic circumstances change and his proposal takes that into account.
“Most importantly, it helps to ensure that developmental priorities and constitutional obligations are pursued at a pace that public finances can sustain,” he told lawmakers.
Michael Grobler, fixed-income strategist at Ashburton Investments, echoed this sentiment, writing in Business Day that “its appeal is flexibility. Shocks are inevitable, and a rigid annual target can force damaging cuts in a downturn or encourage decisions designed only to hit a number.”
Notable
- Kenya’s treasury is projected to miss its legally binding 2028 public debt limit target, keeping debt above 55% of GDP until at least 2030.