The International Monetary Fund has urged South Africa to introduce a clearer and more binding rule to limit government debt, warning that although there are signs of gradual improvement in the economy, risks to the outlook remain tilted to the downside.
In its annual Article IV assessment of the country’s economy, the IMF said that spending ceilings introduced in 2012 have not been enough to stop debt from rising.
South Africa’s National Treasury projects that gross government debt will stabilise at 77.9% of GDP this year, according to Reuters.
Delia Velculescu, the IMF’s mission chief for South Africa, said the expenditure ceiling has supported fiscal discipline, “but it has not been sufficient to stop debt from continuing to rise over the last 15 years.”
To strengthen policy credibility and put debt on a firm downward path, the IMF recommended that the government adopt a formal fiscal rule targeting a reduction in debt to about 70% of GDP over the medium term and to around 60% over the longer term.
Velculescu said during a briefing that implementing such a rule would help lower the country’s borrowing costs.
South Africa, the most industrialised economy on the continent, has shown signs of improvement after a period marked by governance scandals and institutional decline, particularly during former President Jacob Zuma’s administration.
Recent positive developments include the country’s removal from the Financial Action Task Force’s “grey list” of jurisdictions under increased monitoring for illicit financial flows, as well as its first credit rating upgrade in 20 years in November.
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The IMF’s recommendations follow a staff visit to South Africa in late November and early December 2025.
During that mission, officials met with Finance Minister Enoch Godongwana, Reserve Bank Governor Lesetja Kganyago and other senior representatives.
In the report released on Wednesday, the IMF said a stronger fiscal rule should combine limits on spending, targets for the budget balance, clearly defined exceptions for major economic shocks and oversight by an independent institution.
The Fund supported the government’s plan to achieve a primary budget surplus of 1.5% of GDP in the 2026 fiscal year, meaning revenue would exceed spending before interest payments.
However, it cautioned that additional fiscal tightening would be needed in subsequent years to ensure that debt declines in a sustainable way.
The IMF broadly maintained its macroeconomic projections, forecasting economic growth of 1.4% in 2026 and about 1.8% over the medium term.
Growth is expected to be supported by steady household consumption and a recovery in investment tied to structural reforms. The Fund also expects inflation to fall to the Reserve Bank’s 3% target by the end of 2027.
At the same time, it warned that risks to the outlook include uncertainty in the global economy and the possibility of slowing momentum in domestic reform efforts.
The IMF’s projections are largely in line with those of South African authorities. In November, the Treasury forecast growth of 1.2% in 2025, rising to 2% by 2028, and described risks as tilted to the downside.
The central bank, by contrast, said risks to the outlook were broadly balanced.
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