ARE BINDING FISCAL RULES THE RIGHT SOLUTION FOR DEBT SUSTAINABILITY IN SOUTH AFRICA?

The Institute for Economic Justice argues against the National Treasury's proposal for a binding fiscal rule in South Africa, claiming it misdiagnoses the debt problem by focusing on the quantum of debt rather than the cost of borrowing. Drawing on case studies from Brazil and Indonesia, the paper asserts that fiscal rules often lead to 'creative accounting', inappropriate budget cuts to social services, and reduced flexibility during crises, without necessarily lowering borrowing costs. The authors suggest that sustainable public finances can only be achieved through economic expansion, progressive revenue mobilization, and direct interventions to lower interest rates.

• The authors argue that National Treasury's focus on the quantum of debt is misplaced, as South Africa's debt-to-GDP ratio of 73.9% in 2023/24 is consistent with the emerging market and middle-income average of 73.1%, yet its borrowing costs are significantly higher than its peers.
• South Africa's existing nominal expenditure ceiling has shown inconsistent efficacy; while non-interest spending largely stayed within targets from 2012/13 to 2018/19, it significantly exceeded limits every year from 2019/20 to 2023/24.
• The document suggests that a binding fiscal rule may not legally restrict Parliament's power to appropriate funds under the current South African constitutional framework, potentially requiring a constitutional amendment to be truly binding.
• Fiscal rules risk causing 'inappropriate budget cuts' to social priorities with weak political backing, such as school nutrition and transport, as governments seek to meet numerical targets.
• Evidence from Brazil indicates that fiscal rules can incentivize 'creative accounting' and the systematic denial of approved expenditures to create an illusion of compliance.
• Case studies of Brazil and Indonesia suggest that economic growth, such as the global commodities boom, was the primary driver for improving debt dynamics and lowering borrowing costs, rather than the implementation of fiscal rules.
• The authors contend that the adoption of fiscal rules in developing countries is often driven by IMF conditions in exchange for financial support, which undermines domestic policy sovereignty.
• To restore public finances, the document recommends a government-wide spending review, progressive revenue raising (such as restoring the corporate income tax rate to 28%), and direct tools to lower borrowing costs like central bank intervention and capital management techniques.

APA

Mncube, Z., Mdutyana, L., & IssacS, D. G. (2024). ARE BINDING FISCAL RULES THE RIGHT SOLUTION FOR DEBT SUSTAINABILITY IN SOUTH AFRICA? Institute for Economic Justice. https://iej.org.za/wp-content/uploads/2024/11/IEJ-Discussion-Document-on-Fiscal-Anchors.pdf

Chicago

Mncube, Zimbali, Liso Mdutyana, and Dr Gilad IssacS. ARE BINDING FISCAL RULES THE RIGHT SOLUTION FOR DEBT SUSTAINABILITY IN SOUTH AFRICA? Institute for Economic Justice, 2024. https://iej.org.za/wp-content/uploads/2024/11/IEJ-Discussion-Document-on-Fiscal-Anchors.pdf.

Wikipedia

{{cite report |last1=Mncube |first1=Zimbali |last2=Mdutyana |first2=Liso |last3=IssacS |first3=Dr Gilad |title=ARE BINDING FISCAL RULES THE RIGHT SOLUTION FOR DEBT SUSTAINABILITY IN SOUTH AFRICA? |publisher=Institute for Economic Justice |date=October 2024 |url=https://iej.org.za/wp-content/uploads/2024/11/IEJ-Discussion-Document-on-Fiscal-Anchors.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mncube2024are, author = {Mncube, Zimbali and Mdutyana, Liso and IssacS, Dr Gilad}, title = {{ARE BINDING FISCAL RULES THE RIGHT SOLUTION FOR DEBT SUSTAINABILITY IN SOUTH AFRICA?}}, institution = {Institute for Economic Justice}, year = {2024}, month = oct, url = {https://iej.org.za/wp-content/uploads/2024/11/IEJ-Discussion-Document-on-Fiscal-Anchors.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }