<\/p>\n
South Africa\u2019s plan to control public finances via a so-called fiscal rule will help restore policy credibility, but will need significant support to succeed, according to the International Monetary Fund (IMF).<\/p>\n
National Treasury announced last month it would propose binding guidelines by October to keep public finances in Africa\u2019s largest economy on a sustainable path by introducing a principles-based fiscal anchor.<\/p>\n
Read\/listen:<\/p>\n
Government wants a \u2018credible and principle-led\u2019 fiscal anchor
\nSA public finances \u2019emerging from the fiscal wilderness\u2019
\nWhy SA needs a fiscal rule to manage debt<\/p>\n
Details of what this would look like are to be fleshed out in the coming months.<\/p>\n
But the goal is to control spending and put debt, as a percentage of gross domestic product, on a downward path after a projected peak of around 79% in the fiscal year that ends 31 March.<\/p>\n
\u201cEstablishing a principles-based fiscal framework in legislation is an appropriate first step toward policy credibility and debt-reduction objectives,\u201d the IMF said in a note published by National Treasury on Thursday.<\/p>\n
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It added that success will require the support of \u201cstrong supporting public financial management institutions\u201d.<\/p>\n
This includes the need to reprioritise government spending and ensure the Treasury can monitor and help manage fiscal risks stemming from state enterprises.<\/p>\n
Finance Minister Enoch Godongwana hopes to present the proposal to lawmakers when he tables the mid-term budget in October.<\/p>\n
Read:<\/p>\n
Goldman and Citi see SA waiting to adopt rule on debt
\nSA nears fiscal turning point, treasury chief says
\nFiscal anchor could keep SA on track, says Sarb<\/p>\n
South Africa\u2019s finances worsened dramatically during former president Jacob Zuma\u2019s rule, when mismanagement and the looting of state power utility Eskom and freight-rail and ports operator Transnet led to major taxpayer bailouts.<\/p>\n
Combined with the aftermath of the 2008 global financial crisis and feeble economic growth, this saw the nation\u2019s debt-to-GDP ratio more than triple, driving borrowing costs to around 21% of total revenue from less than 9%.<\/p>\n
Read: Government debt and how it affects citizens<\/p>\n
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\u201cStrong management of fiscal risks remains of paramount importance to securing South Africa\u2019s fiscal sustainability, given the history of negative budget shocks from state-owned companies,\u201d the IMF said.<\/p>\n
It acknowledged that such rules should also include a so-called escape clause that would allow the government to loosen the purse strings in case of a shock to the economy, but cautioned that these need to be carefully designed.<\/p>\n
\u201cThere is no one-size-fits-all approach to escape clauses, but to prevent it from being triggered too easily, there should be clear principles established,\u201d the Washington-based lender added.<\/p>\n
\u00a9\u00a02026\u00a0Bloomberg<\/p>\n
#IMF #urges #careful #design #SAs #planned #fiscal #rule<\/p>\n","protected":false},"excerpt":{"rendered":"
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