Enoch Godongwana, Minister of Finance. (Photo: South African Government
The concept of a fiscal anchor, which is widely discussed after the budget, is more than a buzzword.
If properly designed and enshrined in legislation, it can be an important tool to stabilize South Africa’s public debt, promote fiscal sustainability, aid economic growth and strengthen investor confidence, says the treasury.
South Africa is expected to have more certainty at the end of this year about the legal framework that will underpin the government’s long-awaited proposal for a fiscal anchor as an important step to curb public debt.
A fiscal anchor involves rules that place a limit on one or more fiscal measures for which the government is responsible to ensure the long-term sustainability of the public finances.
Enoch Godongwana, minister of finance, said during the 2026 budget speech that more details on a principle-driven fiscal anchor will be tabled in the medium-term budget framework (MTBR) in October or November.
According to the treasury, fiscal legislation will require each new administration to propose a medium-term plan on how the sustainability of the budget will be protected and maintained.
Rising debt service costs necessitate fiscal anchoring
At a time when increasing debt makes it difficult for the state to invest in growth and essential services, such an anchor can be the signpost that puts the public finances on a more sustainable path.
In a discussion document on fiscal anchors published in March last year, the treasury admits that high debt levels leave the country structurally vulnerable and come at a great socio-economic cost.
In essence, it is the same with personal or household debt: The more interest you pay on high loans, the less money is available for, for example, necessities and an emergency fund.
The 2026 budget documents are clear that if the public finances are not managed sustainably, the state’s debt service costs will consume more and more of the economically available resources, as well as erode investment, productive capacity and living standards.
Between 2008/2009 and 2023/2024, the country’s debt to GDP ratio rose from around 24% to 74%. Debt service costs shot up from 9% of government revenue to 21%. This means that by 2023/2024, 21c out of every R1 of income has gone to interest payments.
The good news in this year’s budget is that public debt is expected to reach a peak of 78.9% of GDP this year before it continues to decline. The interest that South Africa pays on its debt has been the fastest growing budget item for years, because the government had to borrow so much to cover all its expenses.
For the first time in a decade, debt service costs are now growing more slowly than overall spending, says the Treasury in the budget review. Over the next three years, debt and interest payments will be R21 billion lower than what was foreseen in the MTBR in 2025.
Fiscal anchor must set ‘meaningful limits’
Duncan Pieterse, director general of the treasury, told Reuters that a more formal fiscal anchor would strengthen credibility in the government’s handling of the public finances.
According to prof. Joseph Sekhampu, chief director of the North-West University’s business school, shows the work to set a fiscal anchor that the government prioritizes credibility and discipline.
Photo for illustration. (Photo: Steve Buissinne, Pixabay)
“However, its effectiveness will depend on how enforceable it is. A fiscal anchor can provide markets with the necessary certainty and be a guideline for future budgets, but only if it sets meaningful limits on discretion in times when political pressure increases.”
Johann Els, chief economist of the PSG group, said that although it looks like the country will know more by October about how a fiscal anchor can be contained in legislation, there are still fiscal risks while there is still no formal anchor on government spending.
“Treasury has been promising the anchor for some time, but has yet to come up with it. There is an informal anchor in terms of what the government calls rising primary budget surpluses.”
This refers to a situation where the state’s income covers all expenses – excluding interest payments.
South Africa achieved its third consecutive budget surplus last year, amounting to 0.9% of GDP. The government foresees that this surplus will strengthen to 2.3% of GDP by 2028/2029.
What should SA’s formal fiscal anchor look like?
The treasury says that although fiscal sustainability has always been a goal, there is currently no statutory framework that expressly defines or prescribes it.
A well-thought-out and well-designed fiscal anchor must maintain a balance between discipline and flexibility that ensures sustainable fiscal policy while allowing for the necessary adjustments in times of economic downturn.
The fiscal anchor must promote credible assumptions about growth, interest rates, tax revenues and government expenditures. It also cannot allow too much flexibility and a well-defined mechanism must be in place to deal with deviations from the fiscal targets while maintaining transparency, says the discussion document.
Advantages:
- Promotes responsible macroeconomic management and serves as a benchmark for sustainable public debt
- Provide a framework on income and expenditure to ensure transparency and predictability of budgets
- Ensure information gaps are filled that help economists better understand the future direction of fiscal policy
Some of the approaches to developing an anchor involve a numerical model (which sets binding limits on debt levels such as a debt ceiling of how much the state may borrow relative to GDP) or a set of formal rules for fiscal standards and principles in the design and implementation of fiscal policy.
The treasury’s discussion document says South Africa, like Brazil and India, has developed a procedural framework that emphasizes transparency and structured fiscal management. This involves using accurate information about fiscal outcomes and details about plans to be implemented.
Many European and developed economies, on the other hand, incorporate numerical limits into legal frameworks that include ceilings for debt and budget deficits, but according to the Treasury it is debatable whether these rigid limits are effective and appropriate.
