JOHANNESBURG, Feb 12 – The International Monetary Fund has recommended that South Africa introduce a more explicit and binding fiscal rule to contain public debt, cautioning that downside risks to the country’s economic outlook remain even as conditions show gradual improvement.
In its latest Article IV consultation report, the IMF noted that the expenditure ceiling framework introduced in 2012 has supported fiscal discipline but has not prevented the steady rise in government debt over the past decade and a half.
South Africa’s National Treasury currently expects gross government debt to stabilise at 77.9 percent of gross domestic product this year. However, IMF mission chief Delia Velculescu said that while the spending cap has played a constructive role, it has not been sufficient to reverse the upward debt trend.
To reinforce fiscal credibility and anchor expectations, the Fund proposed adopting a formal rule aimed at reducing debt to roughly 70 percent of GDP over the medium term and to about 60 percent over the longer horizon. According to the IMF, such a framework could help reduce sovereign borrowing costs by providing clearer policy direction to investors.
The recommendation follows discussions held in late 2025 between IMF staff and senior South African officials, including Finance Minister Enoch Godongwana and Reserve Bank Governor Lesetja Kganyago.
In its report, the IMF said any revised fiscal framework should combine firm expenditure limits with explicit budget balance targets, clearly defined escape clauses for major economic shocks and oversight by an independent institution to enhance accountability.
The Fund endorsed the government’s plan to post a primary budget surplus of 1.5 percent of GDP in the 2026 fiscal year. However, it warned that additional fiscal consolidation may be required in subsequent years to place debt on a durable downward trajectory.
On the broader macroeconomic outlook, the IMF projects growth of 1.4 percent in 2026 and around 1.8 percent over the medium term, supported by resilient household consumption and investment gains linked to ongoing structural reforms. Inflation is expected to ease toward the South African Reserve Bank’s 3 percent target by the end of 2027.
Despite recent positive developments, including the country’s removal from the Financial Action Task Force grey list and its first sovereign credit rating upgrade in two decades, the IMF said risks remain tilted to the downside. Global economic uncertainty and the possibility of stalled domestic reform efforts could weigh on momentum.
The Fund’s projections are broadly aligned with official forecasts. In November, the Treasury estimated growth of 1.2 percent in 2025, rising to 2 percent by 2028, while noting that risks remain skewed to weaker outcomes.
