South Africa’s finance chief says fiscal rules require political buy-in

by MMC
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(Bloomberg) — South Africa’s finance minister Enoch Godongwana He acknowledged that the country’s politics made fiscal rules difficult to follow, but said his colleagues understood the vital need to control spiraling debt-servicing costs.

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“Fiscal rules arise in a political context,” Godongwana told Bloomberg News in an interview in Cape Town on Thursday, a day after the national budget was tabled. “Is South Africa’s political economy ripe for fiscal rules?” The answer, if you ask me: no.

To impose budgetary rules requires strong leadership, he said.

Godongwana’s budget is the 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 brought him 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 by 150 billion rand ($7.9 billion) by tapping profits from its reserves. gold and exchange. The Treasury also announced its intention to introduce a new fiscal target to ensure the long-term sustainability of public finances.

The move aims to ease questions about what will happen in the long term to prevent South Africa from returning to living beyond its means amid anemic growth. “This will secure the benefits of fiscal consolidation and ensure that permanent fiscal imbalances do not re-emerge in a way that would require painful future adjustments,” Treasury said in its review of the budget.

Details are still being worked out. But Godongwana said relying on debt and debt service targets made sense because the consequences of failing to master them were easy to understand. South Africa devotes one rand in five of its public revenue to repaying its debt.

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

Analysts said questions would remain about South Africa’s long-term fiscal outlook until it was clear how binding the peg would be.

“In reality, this requires broader awareness among all political actors,” said Razia Khan, head of research at Standard Chartered Bank. “On the Treasury side, we have a very clear feeling that debt levels are problematic. But if they don’t start tackling it now, they will have to run even larger primary budget surpluses in the future in order to stabilize debt levels.”

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