Eyebrows were raised when finance minister Tito Mboweni agreed he’d look into the possibility of adopting a debt ceiling in 2020 on securing a R70bn IMF loan. It seems South Africans’ scepticism was well founded. Last week the National Treasury rejected the DA’s Fiscal Responsibility Bill which proposes just this.
In arguing against the bill in parliament, Edgar Sishi, the acting head of the Treasury’s budget office, admitted that while “stronger steps” were needed to address SA’s fiscal imbalances, a debt ceiling just wasn’t the best way to do it. Rather, the focus should be on turning around state institutions, raising the efficiency of state spending, instituting credible leadership, and stamping out waste and corruption.
Also more important for SA’s fiscal recovery, said Sishi, would be to commit to greater private participation in sectors dominated by excessive state control; and to unburden the fiscus of contingent liabilities “that have no clear contribution to the state’s developmental agenda” — presumably a reference to the state’s ongoing bailouts for SAA.
In short, SA’s fiscal challenges have mostly to do with a lack of growth, bad policy choices and weak governance — something a fiscal rule would be powerless to address. But just because the state should be prioritising reforms in these areas doesn’t mean it shouldn’t add a debt ceiling to its arsenal.
After all, the Treasury has stuck doggedly to a self-imposed expenditure ceiling since 2013, with few breaches. Moreover, the 2021 medium-term budget framework proposes severe austerity, including a three-year wage freeze, to meet a self-imposed, unofficial debt ceiling of 88.9% by 2025/2026.
This makes me suspect that the real reason the Treasury doesn’t want an externally imposed, official debt ceiling is because it would remove its discretion over the pace of fiscal consolidation as well as its flexibility to overshoot its debt targets without consequences — as it has done every year for much of the past decade.
Sishi admits that SA would battle to stick to a debt ceiling, saying it would be “difficult to implement far-reaching fiscal rules because SA’s economic growth is persistently weak, and the public finances are managing several large risks beyond the control of the fiscal authorities”.
And, of course, he doesn’t say it, but every time SA breached an official debt ceiling, or invoked the bill’s escape clause to push it out, the optics would be terrible.
However, the real problem with any fiscal rule is that it is as good as the political will behind it and impossible for any treasury to conform to on its own — even one headed by someone as tenacious as Mboweni. Without collective responsibility from the whole of government, it’s unlikely that a debt ceiling introduced 10 years ago would have prevented SA’s fiscal deterioration; nor will one if introduced in 2021.
But isn’t that exactly why we need one — to give parliament sharper teeth, invite greater scrutiny over the spending decisions of politicians, and enforce a higher degree of accountability from government?
The whole point of the bill, explains its leading proponent, DA finance spokesperson Geordin Hill-Lewis, is to provide a clear anchor target of where we should be heading as a country. (It proposes a ceiling of 50%-55% of GDP in line with the IMF’s target cap for medium-risk countries — something which seems laughable given SA’s post-Covid-19 debt spike to about 80%. Even achieving the Treasury’s 88.9% is going to be a tall order.)
But Hill-Lewis is undeterred: “We seem to have lowered our expectations for the country. Junk ratings have become almost acceptable [as has] 74% youth unemployment [and] no growth. All of these trends will worsen unless we can restore the credibility of our public finances, win back our investment-grade credit ratings, and bring down debt-service costs”.
All told, it’s short-sighted of the Treasury to oppose a debt ceiling outright. The DA’s bill may not be well crafted but the intention behind it is spot on.
• Bisseker is a Financial Mail assistant editor.
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