---
title: "South African Finance Chief Wary of Binding Rules to Cap Debt"
description: "South African Finance Minister Enoch Godongwana warned that the adoption of a binding fiscal anchor would limit the National Treasury’s policy options if enforcement is entrusted to a body outside of the government."
type: "NewsArticle"
publisher: "Daily Maverick"
site: "https://www.dailymaverick.co.za"
section: "Newsdeck"
author: "Bloomberg"
author_url: "https://www.dailymaverick.co.za/author/bloomberg/"
canonical_url: "https://www.dailymaverick.co.za/article/2024-10-31-south-african-finance-chief-wary-of-binding-rules-to-cap-debt/"
published: "2024-10-31T18:17:37"
updated: "2024-10-31T18:17:38"
lang: "en-ZA"
word_count: 580
---

# South African Finance Chief Wary of Binding Rules to Cap Debt

> South African Finance Minister Enoch Godongwana warned that the adoption of a binding fiscal anchor would limit the National Treasury’s policy options if enforcement is entrusted to a body outside of the government.

By Bloomberg · Published 31 October 2024, 20:17 SAST · Updated 31 October 2024, 20:17 SAST

## Key points
- In a classic case of fiscal tug-of-war, South Africa's finance minister Godongwana raises eyebrows by suggesting that a proposed fiscal council to cap the nation's debt might just be the bureaucratic equivalent of putting a speed limit on a runaway train—necessary, but potentially derailing for the government's policy freedom.
- Finance Minister Godongwana raises concerns over a proposed fiscal council, fearing it may undermine elected officials and fiscal policy.
- South Africa's debt-service costs exceed 20% of budget revenue, prompting calls for a fiscal anchor to stabilize finances amid a widening budget deficit.
- Godongwana indicates a new inflation target or fiscal anchor is unlikely by February's budget speech, citing the need for political consensus.
- Despite potential rating reviews from Fitch, Moody's, and S&P, the minister prioritizes addressing the country's pressing needs over credit ratings.

## Content

A fiscal council would have to be established to oversee the anchor — which would effectively cap the nation’s debt — and its priorities could be at odds with the nation’s fiscal policy and undermine the role played by elected officials, according to Godongwana.

The council could prevent the Treasury from straying away from debt parameters and even take it to court if it tries to do so, and “that is problematic,” he said in an interview in Cape Town on Thursday. “I have no qualms with a fiscal anchor. I do have with a problem with regulations and rules to enforce it.”

Debt-service costs consume more than a fifth of South Africa’s budget revenue, crowding out spending on health care and education, and a number of economists and political parties have called for an anchor to stabilize the state’s finances. Godongwana’s budget update released Wednesday showed a deterioration in the nation’s debt metrics, with this year’s estimated budget deficit widening from the previous prediction in February.

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While a fiscal anchor isn’t completely off the table, it shouldn’t limit the government’s policy choices, the minister said.

In a speech delivered earlier Thursday, the finance minister said South Africa is unlikely to have a new inflation target or a fiscal anchor in place by the time he delivers his budget speech in February’s budget, as more work needs to be done to achieve political consensus.

The South African Reserve Bank began formally pursuing an inflation target in 2000, when it was set at 3% to 6%. In 2017, the bank started explicitly communicating its aim of anchoring price expectations at the 4.5% midpoint. The Treasury earlier this year said it’s [working](https://www.bloomberg.com/news/articles/2024-02-23/south-africa-treasury-backs-central-bank-inflation-target-review) with the central bank to review the target.

Lesetja Kganyago, the bank’s governor, has repeatedly called for the goal to be lowered. “We have an opportunity to achieve permanently lower inflation and therefore permanently lower interest rates,” he said earlier this month.

| Read More on South Africa’s Economic Policy Options: |
| --- |
| [South Africa Weighs Options to Cap Debt Despite Opposition](https://www.bloomberg.com/news/articles/2024-10-30/s-africa-treasury-weighs-options-to-cap-debt-despite-opposition)[Kganyago Presses Case for a Lower South African Inflation Target](https://www.bloomberg.com/news/articles/2024-10-24/kganyago-says-south-africa-s-inflation-target-should-be-lower)[South Africa Finance Chief Says Fiscal Rules Need Political Buy In](https://www.bloomberg.com/news/articles/2024-02-22/s-africa-finance-chief-says-fiscal-rules-need-political-buy-in) |

Godongwana said it was premature for a developing nation like South Africa to reduce the target and that doing so was low on his list of priorities.

His view drew backing from Carmen Nel, multi-asset head for Terebinth Capital.

“I know it’s not something that bond investors should be saying” but “it’s not obvious that that should be the priority, to lower the inflation target,” she said. “I think we do have a lot of other pressing issues.”

Godongwana also said the government was pushing ahead with reforms, tackling its debt burden and achieving fiscal consolidation, and that it wasn’t concerned about whether ratings companies adjusted their assessments of the nation’s debt.

Fitch Ratings and Moody’s Ratings may review South Africa’s rating following the release of the budget update, while S&P Global Ratings’ assessment is due from Nov. 15. All three companies have a sub-investment grade rating on South Africa with a stable outlook.

“I’m focusing on what are the key pressing needs of the country without fearing that I’m going to lose anything in terms of ratings,” Godongwana said. If an upgrade comes that’s “well and good, but if it doesn’t come, that is not my preoccupation for now,” he said.