The International Monetary Fund (IMF) has called on South Africa to implement a formal, binding limit on government debt, warning that the country’s economic outlook remains vulnerable despite recent positive developments. The recommendation, delivered in the IMF’s annual Article IV report released on Wednesday, centers on establishing a clear path to reduce public debt to around 70% of GDP in the medium term, and ultimately to 60% over the longer term.
Currently, the National Treasury projects gross government debt will stabilize at 77.9% of GDP this fiscal year. However, the IMF assessment indicates that existing expenditure ceilings, introduced in 2012, have not been sufficient to halt the rise in debt levels. “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,” stated Delia Velculescu, the IMF mission chief for South Africa.
The IMF believes a more stringent debt rule would lower borrowing costs for South Africa. The proposed rule would encompass limits on spending, targets for the budget balance, clearly defined exceptions for unforeseen economic shocks, and independent oversight. The Fund expressed support for the government’s plan to achieve a primary budget surplus – where revenue exceeds spending excluding interest payments – of 1.5% of GDP in the 2026 fiscal year, but emphasized the need for further fiscal tightening in subsequent years to ensure sustainable debt reduction.
The call for greater fiscal discipline comes amid signs of a tentative economic recovery for Africa’s most industrialized economy. South Africa was recently removed from the Financial Action Task Force’s “grey list” of countries under enhanced monitoring for illicit financial flows, and received its first sovereign credit rating upgrade in two decades in November. These developments reflect a shift following a period marked by governance challenges and institutional weaknesses during the presidency of Jacob Zuma.
The IMF’s assessment, based on staff visits in late November and early December 2025, included consultations with Finance Minister Enoch Godongwana, Reserve Bank Governor Lesetja Kganyago, and other senior government officials. The Fund projects South Africa’s economic growth to reach 1.4% in 2026, rising to approximately 1.8% over the medium term, driven by steady household spending and a recovery in investment linked to ongoing structural reforms.
The IMF anticipates that inflation will stabilize at the South African Reserve Bank’s 3% target by the end of 2027. However, the report highlights downside risks to the economic outlook, including global economic uncertainty and potential setbacks in the implementation of domestic reforms. These projections align broadly with the South African authorities’ own forecasts. In November, the Treasury projected growth of 1.2% in 2025, increasing to 2% by 2028, even as acknowledging downside risks. The central bank described the risks as broadly balanced.
