FIXING SOUTH AFRICA’S DEBT: WHY RIGID FISCAL RULES ARE NOT THE ANSWER

The Institute for Economic Justice argues that rigid fiscal rules are an ineffective tool for managing South Africa's debt, as they often lead to 'creative' accounting, limit democratic engagement, and fail to address the root cause of the crisis: high borrowing costs. Drawing on case studies from Brazil and Indonesia, the brief suggests that economic growth is more effective than numerical constraints in improving debt dynamics. The authors recommend focusing on reducing borrowing costs through Reserve Bank intervention and capital management, increasing revenue via taxes on high-income earners and wealth, and using fiscal policy to drive structural economic transformation and growth.

• South Africa's debt problem is characterized by high debt service costs rather than an excessive debt-to-GDP ratio. While South Africa's debt-to-GDP ratio of 73.9% in 2023/24 is comparable to the emerging market and middle-income average of 73.1%, its real interest rates and interest paid on debt as a share of GDP are significantly higher than those of its peers.
• International evidence from Brazil and Indonesia suggests that fiscal rules do not have a clear causal relationship with improved fiscal outcomes. In both cases, sustained economic growth—such as the commodities boom in Brazil—was the primary driver of improved debt dynamics, rather than the rules themselves.
• The implementation of fiscal rules often leads to negative institutional and democratic consequences, including the use of 'creative' accounting to simulate compliance and the reduction of public debate over redistributive growth and fiscal priorities.
• South Africa's experience with a nominal expenditure ceiling since 2012 shows mixed results; while it initially facilitated austerity, it did not stop debt from rising from 41.1% of GDP in 2012/13 to 51.5% by 2018/19, and it has been consistently exceeded since 2019/20.
• Rigid fiscal rules may be legally problematic in South Africa because they could clash with Parliament's constitutional power to appropriate funds, potentially requiring a constitutional amendment to be truly binding.
• The brief recommends alternative strategies to lower borrowing costs and raise revenue, including Reserve Bank intervention in the primary market, the use of prescribed assets, restoring corporate income tax to 28%, and introducing a Net Wealth Tax and Resource Rent Tax.

APA

Mncube, Z., Mdutyana, L., & Isaacs, G. (2025). FIXING SOUTH AFRICA’S DEBT: WHY RIGID FISCAL RULES ARE NOT THE ANSWER. Institute for Economic Justice. https://www.iej.org.za/wp-content/uploads/2025/02/IEJ-Policy-Brief-Fiscal-Rules-February-2025-1.pdf

Chicago

Mncube, Zimbali, Liso Mdutyana, and Gilad Isaacs. FIXING SOUTH AFRICA’S DEBT: WHY RIGID FISCAL RULES ARE NOT THE ANSWER. Institute for Economic Justice, 2025. https://www.iej.org.za/wp-content/uploads/2025/02/IEJ-Policy-Brief-Fiscal-Rules-February-2025-1.pdf.

Wikipedia

{{cite report |last1=Mncube |first1=Zimbali |last2=Mdutyana |first2=Liso |last3=Isaacs |first3=Gilad |title=FIXING SOUTH AFRICA’S DEBT: WHY RIGID FISCAL RULES ARE NOT THE ANSWER |publisher=Institute for Economic Justice |date=February 2025 |url=https://www.iej.org.za/wp-content/uploads/2025/02/IEJ-Policy-Brief-Fiscal-Rules-February-2025-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mncube2025fixing, author = {Mncube, Zimbali and Mdutyana, Liso and Isaacs, Gilad}, title = {{FIXING SOUTH AFRICA’S DEBT: WHY RIGID FISCAL RULES ARE NOT THE ANSWER}}, institution = {Institute for Economic Justice}, year = {2025}, month = feb, url = {https://www.iej.org.za/wp-content/uploads/2025/02/IEJ-Policy-Brief-Fiscal-Rules-February-2025-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }