South Africa’s National Treasury has released updated technical guidance aimed at strengthening fiscal discipline across government departments, with a clear emphasis on maximizing the impact of every rand spent.
In a context of subdued economic growth, the Treasury emphasized that containing expenditure growth and channeling resources toward strategic priorities remains essential. The newly issued 2027 Medium-Term Expenditure Framework (MTEF) Technical Guidelines provide a structured approach for departments to align their budgeting processes with national fiscal sustainability goals.
Anchoring Budgets in Debt Reduction
Central to the 2027 MTEF is the government’s commitment to stabilize—and progressively lower—the national debt-to-GDP ratio. With interest payments now absorbing nearly 20% of total tax revenue, reducing borrowing costs is a pressing imperative.
“To achieve this, government must continue expanding its primary budget surplus—ensuring that revenue consistently outpaces non-interest expenditure by a growing margin,” the Treasury stated. “Any new spending demands, however urgent, must be financed in a manner that preserves progress toward this fiscal anchor.”
A Statutory Foundation for Budget Planning
Issued annually under Section 27(3) of the Public Finance Management Act (PFMA), the MTEF Technical Guidelines prescribe the format and methodology departments and public entities must follow when preparing three-year budget proposals. This standardization supports transparency, comparability, and strategic alignment across the public sector.
Building on Past Reforms: TARS and PAM
The guidelines reinforce two key initiatives introduced in prior budget cycles:
- Targeted and Responsible Savings (TARS): A mechanism to identify programmes that are inefficient, fail to meet objectives, or represent lower-priority interventions. Resources freed through TARS can be redirected toward higher-impact services and critical delivery areas.
- Programme Assessment Matrix (PAM): A structured tool enabling departments to systematically evaluate the performance, relevance, and cost-effectiveness of individual programmes and public entities.
Core Principles Guiding 2027 Budget Submissions
Departments preparing their MTEF submissions must adhere to the following fiscal principles:
- Windfall revenues are not for permanent spending: Any revenue exceeding Budget projections may only be allocated to debt reduction or temporary needs—such as urgent infrastructure or emergency pressures—not to fund ongoing expenditure increases.
- Budget neutrality for relief measures: The recent fuel levy relief, costing an estimated R17.2 billion, was fully offset by lower-than-anticipated spending and stronger revenue collection. Any future relief initiatives must follow the same fiscally neutral approach.
- New spending requires verified savings: Proposals for additional funding within the overall fiscal envelope will only be considered for priority interventions if corresponding savings have been identified and validated through the TARS process.
- Reprioritization before expansion: Departments must first explore internal reallocations within existing baselines to address emerging spending needs. Programmes with a consistent record of underperformance should be prioritized for review and potential reprioritization.
- Performance-driven decision-making: The PAM framework must be applied to assess the effectiveness and value-for-money of all programmes and public entities under a department’s oversight.
- Compensation within prescribed limits: Staff expenditure must remain within the ceilings established in the 2026 Budget. Departments are expected to manage headcount and compensation structures accordingly to avoid breaching these constraints.
- Wage alignment across the public sector: Salary adjustments in public institutions must conform to the broader Public Service Wage Bill management strategy to maintain fiscal coherence.
- Avoiding unfunded mandates: National departments developing policies that require implementation by provinces or municipalities must ensure these are fully costed and compatible with the prevailing fiscal framework, preventing the imposition of unfunded obligations on sub-national governments.
A Path Toward Sustainable Service Delivery
By embedding these disciplines into the budgeting cycle, National Treasury aims to create fiscal space for critical investments while safeguarding macroeconomic stability. The guidelines underscore a clear message: in an era of constrained resources, smarter spending—not just more spending—is the foundation of effective public service delivery and long-term economic resilience.
