South Africa Weighs Options to Cap Debt Despite Opposition

(Bloomberg) — South Africa’s government is still considering whether to adopt a new fiscal anchor that will provide a sustainable long-term path for public finances, despite opposition from within the country’s biggest political party.

The National Treasury said it is consulting with academics, international experts and other interested parties “to make inputs on fiscal-anchor policy options.” A discussion document will be released by the end of March, according to the budget update released in Cape Town on Wednesday. 

A number of officials from the African National Congress, which lost its parliamentary majority in May elections and entered into a ruling coalition with nine rivals, have said it would be inappropriate for South Africa to have a binding fiscal anchor that will cap borrowing given the country’s stage of development.  

The Treasury intends maintaining a primary budget surplus, whereby revenue would outstrip non-interest expenditure, to stabilize state finances while discussions on new fiscal guidelines are ongoing. 

More work is also being done to figure out if the primary surplus “is the most appropriate or if it needs to be replaced with something else,” Treasury Director-General Duncan Pieterse said.

Proposed legislative changes are also under consideration that will ensure debt sustainability is embedded in the government’s planning and budgeting processes, according to the Treasury.

South Africa achieved its first primary surplus in 15 years in the 12 months through March, and the Treasury anticipates an even bigger one in the current financial year. 

Debt-service costs consume more than a fifth of budget revenue, crowding out spending on health care and education.  

–With assistance from S’thembile Cele, Ntando Thukwana and Paul Richardson.

(Updates with Treasury director-general’s comment in fifth paragraph.)

More stories like this are available on bloomberg.com

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