S. Africa Finance Chief Says Fiscal Rules Need Political Buy In

Ntando Thukwana
·2 min read
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(Bloomberg) -- South Africa’s Finance Minister Enoch Godongwana acknowledged the country’s politics make fiscal rules hard to stick, but said his colleagues understood the vital need to control spiraling debt-service costs.

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“Fiscal rules happen in a political setting,” Godongwana told Bloomberg News in an interview Thursday in Cape Town, a day after tabling the nation’s budget. “Is the South African political economy ripe for fiscal rules? The answer, if you ask me: No.”

To impose fiscal rules, you need strong leadership, he said.

Godongwana’s budget is his last before May 29 elections in which the ruling African National Congress risks losing its majority for the first time since 1994 — when Nelson Mandela led it to power and ended White-minority rule.

The finance minister pleased investors on Wednesday by announcing he would ease the cash-strapped country’s debt burden to the tune of 150 billion rand ($7.9 billion) by tapping profits on its gold and foreign exchange reserves. Treasury also announced it plans to introduce a new fiscal anchor to provide a sustainable long-term path for public finances.

The move is amied at easing questions about what happens longer term to prevent South Africa going back to living beyond its means amid anemic growth. “This will secure the benefits of fiscal consolidation and ensure that permanent fiscal imbalances do not reappear in a way that requires painful future adjustments,” the Treasury said in its budget review.

The details are still being worked out. But Godongwana said that using debt and debt-service targets made sense because the consequence of failing to keep them under control were easily understood. South Africa spends one in every five rand of government revenue in paying for the debt.

The government expects to achieve a primary budget surplus – the amount by which revenue exceeds non-interest spending — in the current fiscal year for the first time since 2008-09.

Analysts said that questions will remain about South Africa’s long-term fiscal outlook until there was clarity on how the anchor would be binding.

“Realistically it does require broader sensitization of all political actors,” said Razia Khan, head of research at Standard Chartered Bank. “From Treasury, we’re getting a very clear sense that debt levels are problematic. But if they don’t start dealing with it now, they’ll have to run ever greater primary fiscal surpluses in the future in order to stabilize debt levels.”

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