South Africa\u2019s finance minister said introducing fiscal rules makes sense, as stagnant economic growth due to incessant power cuts and logistical constraints are hindering efforts to rein in swelling debt.<\/p>\n\n\n\n
Finance Minister Enoch Godongwana announced plans to introduce a binding fiscal anchor in the year ahead when he tabled South Africa\u2019s budget last month in order to provide a sustainable long-term path for public finances.<\/p>\n\n\n\n
South Africans need to discuss that given \u201cour debt servicing costs are rising enormously, is there a scope of saying let\u2019s try and reduce\u201d the debt to gross domestic product ratio and lower debt service costs, Godongwana said in an interview with Bloomberg in Sao Paulo on the sidelines of a Group of 20 meeting of finance chiefs and central bank governors last week.<\/p>\n\n\n\n
The country\u2019s debt-to-GDP ratio, which stood at about 24% in 2008, is expected to peak at 75.3% in 2025-26, down from 77.7% estimated by the National Treasury in November.<\/p>\n\n\n\n
The improved outlook is partly due to plans by the government to tap a portion of the funds in the country\u2019s Gold and Foreign Exchange Contingency Reserve Account (GFECRA) held at the central bank to pay down its debt. <\/p>\n\n\n\n
GFECRA will be restructured to free up R150 billion rand over three years.<\/p>\n\n\n\n
Still, while the move was largely welcomed by markets, it\u2019s viewed as a short-term fix, unlike stronger economic growth.<\/p>\n\n\n\n
\u201cOur major challenge\u201d to lowering the debt-to-GDP ratio is a growth issue, Godongwana said, which is compounded by a murky outlook for the country\u2019s electricity and logistics sector. \u201cThey pose a major risk,\u201d he said.<\/p>\n\n\n\n
The annual economic growth rate of Africa\u2019s most industrialized nation in the past decade has averaged less than 1% because of endemic corruption and constraints at its power, port and rail operators.<\/p>\n\n\n\n
Godongwana has previously said that for the fiscal anchor to become binding, it will need political buy-in.<\/p>\n\n\n\n