South Africa's finance minister said the fiscal rules made sense as slowing economic growth due to constant power outages and logistics constraints was hampering efforts to rein in mounting debt.
When Finance Minister Enoch Godongwana tabled South Africa's budget last month, he announced plans to introduce a binding fiscal anchor next year to put the public finances on a sustainable long-term path.
In an interview with Bloomberg in Sao Paulo, Godongwana said: “Given that debt servicing costs have increased significantly, to what extent can we say that we can lower the debt-to-gross domestic product (GDP) ratio to lower debt servicing costs? He said that South Africans need to debate whether there is any such thing. This was on the sidelines of the Group of 20 (G20) finance secretaries and central bank governors meeting held last week.
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The country's debt-to-GDP ratio, which was around 24% in 2008, is expected to peak at 75.3% in 2025-2026, down from 77.7% estimated by the National Treasury in November.
The improved outlook is due in part to the government's plan to use some of the money held in the central bank's gold and foreign exchange contingency reserve accounts for debt repayments. GFECRA will be restructured to raise R150 billion ($7.9 billion) over three years.
Still, while the move was largely welcomed by markets, it is seen as a short-term solution rather than strong economic growth.
Godongwana said “our big challenge” of lowering the debt-to-GDP ratio is a growth issue, which is exacerbated by the uncertain outlook for the country's power and logistics sectors. “They pose a huge risk,” he says.
Annual economic growth in Africa's most industrialized country has averaged less than 1% over the past decade due to endemic corruption and constraints on power, port and rail companies.
Mr Godongwana had previously said political buy-in was needed to make the fiscal anchor binding.
© 2024 Bloomberg
