IMF urges strict debt caps after SA opts for flexible fiscal rules

In the 2026 Budget, the Treasury said it would announce proposals for a principles-led fiscal anchor in the 2026 Medium-Term Budget Policy Statement (MTBPS), rather than introduce a hard numerical rule immediately. The idea is to build on recent fiscal improvement and give South Africa a more durable framework to keep the public finances sustainable.

The Budget framed this against a backdrop of improving fiscal metrics. The government said debt-service costs were (for the first time this decade) projected to grow more slowly than overall spending, and that debt was expected to peak in 2025/26, after which it would decline.

Government debt increased from under 25% of GDP in 2008/09 to 77% in 2024/25. Debt-service costs over the same period climbed from 9 cents of every rand of tax revenue to 21 cents.

Reuters’ reporting on the Budget added that the Treasury intended the anchor to have a legal basis and to entrench fiscal discipline across administrations, but still as a principles-based system rather than a fixed numerical cap.

However, the International Monetary Fund (IMF) has argued in favour of a numerical fiscal anchor, noting that such a framework would do more than tidy up the books; it could rebuild fiscal credibility, lower borrowing costs, support investor confidence and potentially help ratings over time. The IMF recommends an interim debt target of 70% of GDP by the early 2030s, with a longer-term anchor of 60% of GDP to create a buffer against fiscal risks.

Nine recommendations

These are the IMF recommendations:

• Set a clear debt target. The IMF says South Africa should give itself a credible goal for reducing debt. It suggests aiming for debt of 70% of GDP by the early 2030s as an interim milestone, with a longer-term anchor of 60% of GDP. The point is to show markets, taxpayers and ratings agencies that the government has a credible plan to stop debt from drifting upward.
• Put the fiscal framework into law. The IMF supports starting with a principles-based framework in legislation. In plain terms, the government should not just talk about discipline; it should be legally required to set out how it will keep debt on a sustainable path.
• Add practical numerical rules over time. The IMF’s bigger vision is not only a broad fiscal anchor, but also operational rules that help the government stick to it. These could include limits on how fast spending can grow in real terms and targets to improve the primary balance until debt is on a downward path. That is basically the Treasury equivalent of putting spending on a tighter leash.
• Publish a fiscal strategy statement for each term of government. The IMF says the government should issue a formal document setting out its debt-reduction targets and exactly how it plans to attain them during its term in office. That would make the strategy more transparent and easier to judge.
• Report on progress regularly, and let Parliament scrutinise it. The government should be required to report on that strategy in the MTBPS, and one of South Africa’s independent fiscal institutions should report to Parliament on whether the government is actually complying. In other words, give us actual scorecards rather than vague promises.
• Strengthen public financial management. Rules are not enough on their own. The IMF says the government must get better at reprioritising spending, making tough Budget choices, and dealing with urgent costs without blowing up the fiscal plan.
• Get much tougher on fiscal risks, especially from SOEs. A big IMF concern is that state-owned companies can suddenly create expensive Budget shocks. The Treasury should have enough information and authority to monitor these risks properly and help manage them.
• Improve long-term forecasting. The IMF says South Africa should build stronger capacity to forecast and report on the public finances over the longer term.
• Allow escape clauses, but make them strict. The government may sometimes need to deviate from the rules during a major shock. But those exceptions should be clearly defined in law, triggered only under specific conditions, justified by the finance minister, approved by Parliament, and followed by a plan to get back on track.

The reality is that despite the government’s best intentions to stabilise debt over many years (remember Tito Mboweni’s austerity measures?), public debt has increased at one of the fastest rates among emerging market economies over the past decade, reaching more than 75% of GDP by 2025.

Speaking shortly after the Budget in February, Old Mutual Wealth investment strategist Izak Odendaal said the gross debt-to-GDP ratio is expected to have peaked in the current fiscal year at 79.8% of GDP. “For the first time in 17 years, the debt ratio will not increase, and it is projected to gradually drift lower in the years ahead,” he said.

In a media statement on Thursday, 12 March, the Treasury said it welcomed the IMF’s endorsement of South Africa’s ongoing efforts to strengthen its fiscal framework.

“The report provides technical guidance on strengthening fiscal risk management, improving public financial management and articulating a clear fiscal strategy. This will inform government’s work as consultations on strengthening the fiscal framework continue,” said the Treasury.

It added that, in the interim, the government had opted to pursue a principles-based framework, where governing administrations will be legally required to outline a detailed fiscal plan to ensure debt remains on a sustainable path throughout their term of office.

The Treasury maintains that this framework is better suited to South Africa’s institutional and economic context and provides the flexibility needed to respond to economic shocks while maintaining fiscal discipline. DM