In the end, when adherence to numerical targets clashes with other political or economic interests this often results in a breach of the rules and the erosion of the credibility of the budget. [...] The current trend of the failure to adhere to the expenditure ceiling, and political contestations on the budget, may hinder its efficacy and these need to be considered in the proposal of a fiscal rule in South Africa. [...] First, the imposition of the fiscal rule led to the use of improper accounting practices in order for the government to give the illusion that it was abiding by the fiscal rule. [...] Compliance with, and efficacy of, the 2004 fiscal rules The recovery of economic growth, rather than the implementation of fiscal rules, appears to be the major factor explaining the stabilisation of fiscal aggregates in Indonesia. [...] In sum, the restoration of fiscal aggregates was likely the result of the continuation of a conservative fiscal stance which had provided surpluses before the financial crises, and the recovery in economic growth.
Related Organizations
- Pages
- 35
- Published in
- South Africa
Table of Contents
- ARE BINDING FISCAL RULES THE RIGHT SOLUTION FOR DEBT SUSTAINABILITY IN SOUTH AFRICA 1
- Acknowledgements 2
- Executive Summary 3
- Table of Contents 5
- 2. Overview of fiscal rules 7
- Figure 1 Number of countries using fiscal rules worldwide in 2021highlighted 8
- 2.1. Types of fiscal rules 8
- Table 1 Fiscal Rules and the share of countries with the rules 9
- Type Nature of the rule Purpose of the rule Share of countries with the rule 9
- Debt rule 9
- Budget balance rules 9
- Expenditure rules 9
- Revenue rules 9
- 2.2. Accompanying institutions the role of fiscal councils 10
- 2.3. The theoretical framework 10
- 3. Diagnosis of the problem is too much debt the issue 11
- 4. Unpacking the solution would a fiscal rule curtail discretionary spending 12
- 4.1. South Africas mixed record with fiscal rules 12
- Table 3 Main budget non-interest expenditure in millions of rands 201213 - 201718 13
- 4.2. In general compliance is poor 14
- 4.3. The political economy of spending and borrowing decisions in South Africa 14
- 4.4. A debt rule may not actually place a legal restriction on spending 15
- 5. Unintended consequences 16
- 5.1. Inappropriate budget cuts 16
- 5.2. Limiting our ability to respond to crisis and subsequently breaking the law 17
- 5.3. Limiting democratic engagement 17
- 6. International case-studies 17
- 6.1. Brazil 18
- 6.1.1. Background and the implementation of fiscal rules 18
- Year Rule Purpose 19
- 6.1.2. Compliance with and efficacy of the fiscal rule 20
- Figure 2 Real interest rate on 10-year government bond in Brazil 1997-2023 21
- Figure 3 Real GDP growth and government expenditure share of GDP in Brazil 1994 - 2023 22
- 6.1.3. Lessons from Brazil 22
- 6.2. Indonesia 23
- 6.2.1. Background and the implementation of fiscal rules 23
- Figure 4 Interest Paid as a share of GDP in Indonesia 1994 - 2022 24
- 6.2.2. Compliance with and efficacy of the 2004 fiscal rules 24
- Figure 5 Government primary and budget balance and public debt as a share of GDP in Indonesia 1995 - 2022 25
- Figure 6 Real GDP growth and Real interest rate on 10-year Government BondIndonesia 1990 - 2023 25
- 6.2.3. Lessons from Indonesia 26
- 7. Ten lessons for South Africa 26
- Fiscal rules are ill-suited to a world of growing external shocks 26
- Fiscal rules may clash with developmental goals 26
- Fiscal rules may distort spending in unhelpful ways 27
- Monetary policy has a significant impact on borrowing costs. 27
- Economic growth remains key 27
- Flexibility of fiscal rules must align with the goals of fiscal policy 27
- Fiscal rules do not resolve political contestation and may result in the illegal circumvention of the rule 28
- Fiscal rules may encourage the use of opaque accounting techniques to comply with numerical limits 28
- Given South Africas legal framework it is unclear whether a fiscal rule will in fact place a binding limit on expenditure 28
- 10. IMF backed fiscal rules undermine policy sovereignty. . 28
- 8. A way forward 28
- 9. Endnotes 30
