The ANC’s top brass has come out against the introduction of a fiscal anchor proposed by the National Treasury at the suggestion of the IMF and intended to provide a sustainable long-term path for public finances.
The head of the party’s economic transformation committee, Mmamoloko Kubayi, said on the sidelines of the ANC’s national executive committee (NEC) meeting at the weekend that the party would prefer the focus to be shifted to responsible spending that does not compromise service delivery instead of placing a cap on rising debt.
The Treasury announced in the February budget that it was working on a fiscal anchor and that in the meantime the achievement of a primary budget surplus (when revenue exceeds non-interest government expenditure) would serve as one. “Fiscal anchor” refers to a binding constraint on fiscal policy, which would require the Treasury to adopt a specific policy approach.
“We’ve always called for a balance between fiscal policy that would ensure that we don’t have debt that is running ahead,” Kubayi said. “We must improve the quality of spending ... so where growth is coming is where we must channel our money, in those areas.
“We don’t think just capping is responsible ... the issue for us is the growth our economy ... The conversation that we are having around servicing of the debt is because our economy is not growing well, to the percentage that we want, and therefore we are not generating enough revenue.”
The IMF has urged SA to legislate a debt ceiling to reduce its stock of debt. According to Treasury data, the debt-to-GDP ratio is projected to hit 75.3% in 2025. The IMF has urged the government to cut its debt to 60%-70% of GDP in the next five to 10 years.
Debt risks
SA was one of the countries mentioned by the IMF (with the UK, Brazil, France and Italy) where debt is expected to continue rising, saying countries “should confront debt risks now with carefully designed fiscal policies that protect growth and vulnerable households, while taking advantage of the monetary policy easing cycle”.
It was an opportune time for these countries to start rebuilding “fiscal buffers”, which usually involved raising taxes or cutting spending or both, the IMF said. Delaying action “will make the required adjustment even larger”.
Curbing spending will be a difficult task for the ANC-led government of national unity (GNU) amid calls for increased spending, including extending the R350 monthly welfare grant that was introduced in 2020. The Treasury is also under pressure to use this week’s medium-term budget policy statement to plug the R32bn hole in provincial education department budgets and avoid a countrywide shortage of teachers.
Cosatu, the country’s biggest labour federation and an ANC ally, has already rejected any suggestion of education budget cuts.
“The federation agrees public debt must be managed, and its trajectory curbed, but the most sustainable and sober path to achieve that is to stimulate economic growth, spur job creation, ensure the state can provide the quality services and support that society and the economy depend upon,” spokesperson Matthew Parks said.
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