Public Finance and Debt Crises in Southern Africa: A Push for Central Banks over Parliaments

Abstract

In the soaring symphony of fiscal policy in Southern Africa, this paper orchestrates a new tune, proposing that central banks, not parliaments, should take the lead role in managing and taming sovereign debt. This proposal reacts to the adoption by the Southern African Development Community (SADC) of the Public Finance Management Model Law on July 14th last year – a law that empowers SADC parliaments, especially their public accounts committees (PACs), to oversee governments’ management of public debts. Among other things, this model law on public finance management (PFM) provides for debt ceilings and the steering of public debts towards SADC voluntary debt target of 50% of gross domestic product (GDP). Drawing on law and economics, this paper criticizes SADC’s decision to empower parliaments to tame sovereign debts as hopelessly naïve because they lack the incentives to do so. Instead, this paper proposes that SADC reallocates to central banks the heavy responsibility to act as stewards of sovereign debt management because the 2009 SADC Central Bank Model Law and the municipal laws that domesticated it have entrenched the independence of central banks from external interference and political pressure. In a region that houses the world’s two most unequal societies, South Africa and Namibia, parliaments will most probably not sacrifice their electability in order to rein in public finances and sovereign debt. The world’s first-ever model community law on PFM, the SADC PFM Model Law affords policymakers and scholars a golden opportunity to rekindle the debate on sovereign debts in a region where economies and public finances have been ravaged by low-growth or recession since the mid-2010s, the COVID-19 pandemic, the Ukraine War, high inflation, and the cost-of-living crisis.

Keywords

• sovereign debt
• public finance
• central banks
• parliaments
• public accounts committees
• SADC