When Keitumetse Sesana looks ahead to Wednesday’s Medium-Term Budget Policy Statement, she is not thinking in the abstract language of ratios and rules. The tax legislative policy expert wants to know whether the money government saves is actually reaching the ground. “The MTBPS must show what has actually been saved and whether resources are reaching services and growth-enhancing investment,” she says. She is also expecting feedback on efforts to curb wastage and an update on the Targeted and Responsible Savings (Tars) budget reform initiative, the Treasury programme taking aim at wasteful spending and rooting out government ghost workers.
For ordinary South Africans, the question behind the numbers is a simple one: will the state live within its means, and will that make any difference to the services people rely on? That question sits at the heart of the fiscal anchor debate, which has remained just that, talk, for some time. There is hope once again that Finance Minister Enoch Godongwana will put words into action when he delivers his statement in parliament on Wednesday (21 October).
A fiscal anchor is a financial rule that guides government on how much it can spend and how much debt it can take on. There is general consensus that such a rule would benefit South Africa by keeping runaway spending and debt in check. Debt-to-GDP currently stands at close to 77%, a figure that shapes how much of the budget goes to servicing what the country owes rather than to what citizens receive.
The options on the table are not new. In a January 2025 research note, the Bureau for Economic Research (BER) at Stellenbosch University set out four general types of rules. Debt rules set limits on debt-to-GDP ratios. Budget balance rules set targets for budget balances, normally expressed as a percentage of GDP. Expenditure rules set limits to public expenditure growth, and revenue rules set targets for revenue collection or limits on the tax burden. Most of these categories come in different variations, most notably to adjust targets for economic cycles.
Empirically, fiscal rules have a mixed track record, writes researcher Robert Botha, who prepared the note for BER. In the South African context, he adds, fiscal rules might be useful for building consensus around the need to improve fiscal credibility and sustainability going forward, especially during periods of “economic plenitude”.
Economists differ on what kind of anchor would serve the country best. Annabel Bishop, chief economist at Investec, said in a recent podcast that credibility is improved if the anchor is flexible rather than hard. Typically, a hard anchor would be a government declaring that the debt-to-GDP ratio should not exceed 80%. Credibility is jeopardised when an economic crisis such as the Covid-19 pandemic or a global shock causes an economic tsunami in South Africa, or when the target is adjusted too often. She refers to having “crisis flexibility” built into a fiscal anchor for difficult periods, and she is hopeful that Godongwana will spell out which way National Treasury will go when he presents the statement. Having flexibility will “strengthen our fiscal path”, she believes, and will give credit rating agencies even more confidence in South Africa. “It’s important to provide guidelines or guardrails, so that we know what we are trying to achieve.”
Dawie Roodt, chief economist at the Efficient Group, notes that several countries have introduced some form of fiscal anchor. The US has a nominal anchor where debt is limited to a certain amount, while some European countries have indirect fiscal anchors combining fiscal deficit and debt-to-GDP rules. Roodt is in favour of an anchor for South Africa, but he would prefer one that targets state spending-to-GDP, not only limiting it to a specific level but limiting it to a lower level over time. “Spending is eventually what drives the tax burden.”
Meanwhile, the current preference appears to be a debt-to-GDP anchor with a specific target, and it looks like a ratio of 80%. Roodt is not comfortable with this. “What is debt really? Is it net or gross debt, and does it include debt of state-owned entities that is basically guaranteed by him [the minister of finance] and local government debt that is implicitly guaranteed by him.” He acknowledges that the same concern applies to an anchor targeting spending, which is why it will be important for Godongwana to be specific about what will be included.
There is, finally, a lacuna that no technical design can fully close: a fiscal anchor can be adjusted. “The Americans keep adjusting their nominal fiscal anchor and the Europeans simply ignore their fiscal anchors. In the end it all depends on political will,” says Roodt. For the people waiting on Wednesday’s statement, that political will is what will determine whether the anchor becomes action, and whether savings translate into services.