Business

The simple rule that could stop South Africa’s debt spiral

Published

3 hours ago

February 23, 2026

Chiraag

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For years, the phrase “fiscal crisis” hovered over South Africa like a stubborn Highveld storm cloud. Spiralling debt, rising deficits, and repeated bailouts left many wondering whether the country was edging towards financial collapse.

Now, there is cautious optimism.

South Africa’s government debt is expected to stabilise at around 77.4 percent of GDP in the 2025 and 2026 financial year. That shift is significant. After years of ballooning obligations, the country appears to be reaching a fiscal turning point.

But economists say stabilising debt is not enough. If South Africa wants to avoid sliding backwards, it needs something more permanent. It needs a fiscal rule.

A hard lesson from the past

South Africa came dangerously close to a fiscal crunch in previous years. Government spending raced ahead of revenue, debt piled up, and the cost of servicing that debt ballooned.

Interest payments alone are now estimated at roughly R1.2 billion per day. That is money that cannot go to classrooms, clinics, roads, or power infrastructure. Instead, it goes to paying creditors.

While the National Treasury has worked to steady the ship, including promising to stabilise debt as a share of GDP, deadlines have previously shifted. What makes this moment different is the projected third consecutive primary budget surplus in 2025 and 2026.

A primary surplus excludes debt servicing costs. In simple terms, it means the government is bringing in more money than it spends, before interest payments. The surplus is expected to reach about 1.8 percent of GDP, helping stabilise debt.

For many in financial markets, that is a sign of discipline finally taking root.

So what is a fiscal rule?

A fiscal rule is a permanent numerical limit placed on government finances. It can cap the deficit, limit debt relative to GDP, or set spending ceilings. The goal is straightforward: prevent reckless borrowing and anchor expectations about how the state manages money.

South Africa does not currently have a formal fiscal rule.

According to Bank of America analyst Tatonga Rusike, this is the missing piece. While the country may be at a fiscal turning point, there is no binding framework to stop future governments from repeating past mistakes.

The National Treasury has used a nominal expenditure ceiling in recent years. However, it has not been strong enough to curb rising debt levels.

Why markets care

Investors pay close attention to fiscal discipline. A credible fiscal rule could reduce South Africa’s risk premium, lower bond yields, and improve creditworthiness.

Lower bond yields matter. They mean the government pays less to borrow. That, in turn, eases pressure on the budget and frees up funds for productive spending.

Rusike suggests that a headline deficit limit of around 3 percent of GDP could work. A deficit cap at that level would also imply a primary surplus of at least 1.5 percent of GDP. If economic growth exceeds expectations, higher tax revenues could further reduce debt.

In global markets, fiscal rules are often viewed as signals of seriousness. For a country like South Africa, still rebuilding investor confidence, that signal could be powerful.

Image 1: Daily Investor

What happens next

Consultations on a formal fiscal rule are ongoing. A proposal could emerge in the 2026 Medium Term Budget Policy Statement, with possible adoption in Budget 2027.

There is also talk of a softer approach. Instead of a rigid numerical cap, Parliament could strengthen monitoring of budget targets and implementation. That would offer oversight with flexibility, rather than a hard constraint.

Whichever route is chosen, the underlying message is clear. Stabilising debt at 77.4 percent of GDP is only the first step. The real challenge is staying on that path.

South Africans have grown weary of boom and bust cycles in public finances. Social media reactions to budget announcements often swing between scepticism and cautious hope. Many citizens understand that rising debt does not just live on balance sheets. It shows up in power cuts, underfunded services, and slow economic growth.

A credible fiscal rule may not be glamorous. It will not trend online. But it could quietly do what splashy reforms cannot: lock in discipline, rebuild trust, and protect future generations from another debt spiral.

At this moment, with debt finally stabilising and a primary surplus within reach, the opportunity is there. The question is whether South Africa will seize it.