By Colleen Goko
JOHANNESBURG, Feb 11 – The International Monetary Fund has urged South Africa to adopt a clearer and more binding limit on government debt, warning that risks to the country’s economic outlook are tilted to the downside despite signs of gradual improvement.
In its annual economic check-up, a so-called Article IV report, the IMF said South Africa’s spending ceilings introduced in 2012 have not prevented debt from rising.
The National Treasury projects government gross debt will stabilize at 77.9% of GDP this year.
Delia Velculescu, IMF mission chief for South Africa, said the expenditure ceiling rule helped support fiscal discipline, “but it has not been sufficient to stop debt from continuing to rise over the last 15 years.”
To strengthen credibility and put debt on a clear downward path, the Fund recommended that the government adopt a formal rule aimed at reducing debt to about 70% of GDP over the medium term and to around 60% over the longer term.
The recommendation, if implemented, would lower borrowing costs for the nation, Velculescu said in a briefing.
Africa’s most industrialized economy has shown signs of turning a corner after an era of governance scandals and institutional weakening, most prominently during former President Jacob Zuma’s tenure.
The recent positives include the removal of the nation from the Financial Action Task Force’s “grey list” of countries monitored for the risk of illicit money flows, and its first rating upgrade in 20 years in November.
IMF VISIT LATE LAST YEAR
The recommendation follows an IMF staff visit in late November and early December 2025 and meetings with Finance Minister Enoch Godongwana, Reserve Bank Governor Lesetja Kganyago and other senior representatives.
In the report released on Wednesday, the IMF said the rule should include limits on spending, targets for the budget balance, clearly defined exceptions for major shocks and oversight by an independent body.
The IMF backed the government’s plan to run a primary budget surplus — meaning revenue exceeds spending before interest payments — of 1.5% of GDP in the 2026 fiscal year. But it said the government will need to tighten policy further in later years to ensure debt declines sustainably.
The Fund also broadly confirmed its macroeconomic forecast, projecting growth of 1.4% in 2026 and about 1.8% over the medium term, supported by steady household spending and a recovery in investment linked to structural reforms.
The IMF expects inflation to fall to the Reserve Bank’s 3% target by the end of 2027. Risks to South Africa’s outlook included uncertainty in the global economy and a loss of momentum in domestic reform efforts.
The forecasts are somewhat in line with South African authorities’ expectations. In November, the Treasury projected growth of 1.2% in 2025 and rising to 2% by 2028, assessing risks as tilted to the downside, while the central bank described them as broadly balanced.
(Reporting by Colleen Goko, editing by Karin Strohecker and Mark Heinrich)
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