The International Monetary Fund (IMF) has urged the South African government to start implementing reforms that foster private investment, a balanced energy transition, and good governance.
This was just one of the recommendations the IMF Executive Board made after concluding their bilateral discussions under the 2023 Article IV Consultation with South Africa.
In a detailed report yesterday, the IMF also recommended further measures to reform state-owned enterprises, open key network industries to private sector participation, reduce the regulatory burden, and enhance labour market flexibility and the quality of education to tackle high structural unemployment.
The IMF said it recognised that resolving the ongoing energy crisis remained the top priority, providing an opportunity to accelerate the roll-out of renewables.
The lender of last resort also backed the steadfast implementation of the government’s energy transition plan and emphasised the importance of well-targeted fiscal support for affected communities and workers.
The IMF said real gross domestic product (GDP) growth was projected at 0.1% in 2023, reflecting a significant increase in the intensity of power outages, and weaker commodity prices and external environment.
“Annual growth is expected at about 1.5% over the medium term, as long-standing structural impediments, such as product and labour market rigidities and human capital constraints offset expected improvements in energy supply, higher private spending on energy-related infrastructure, and a more supportive external environment,” it said.
“The growth level would be too low to create enough jobs to absorb the new labour market entrants. The fiscal position is projected to deteriorate due to weakening mineral revenue, the Eskom debt relief arrangement, wage bill pressures, and rising debt service. As a result, public debt is not expected to stabilise.”
The IMF also praised the recent reduction in the fiscal deficit, reflecting efforts to contain public spending and improve revenue administration.
Its directors encouraged stronger fiscal consolidation under a credible medium-term framework to put public debt on a firmly declining path while protecting productive investment and well-targeted social spending.
The IMF said this should be supported by reforms to the fiscal framework, procurement system, and public investment management.
In its response, the National Treasury said it was aware of the downside risks to economic growth, adding that the government was working on further measures in this regard.
The Treasury said it would update its projections to take account of risks that have materialised and present these updates in the Medium-Term Budget Policy Statement (MTBPS) in October 2023.
The 2023 Budget projection was a downward adjustment from the projected growth of 1.4% for 2023 in the 2022 MTBPS, informed by the negative impacts of load shedding on the economy, stubbornly high inflation, rising borrowing costs, and a less supportive external environment, among others.
In terms of the fiscal deficit, the Treasury said it would consider recommendations in this regard to ensure that fiscal imbalances were addressed and debt stabilised according to the time frame committed to in the 2023 Budget as risks remained elevated even though the deficit had narrowed, both as a percentage of GDP and in nominal terms.
“Government continues to prioritise the implementation of structural reforms to lift the potential growth rate of the economy. In the near term, government is addressing electricity and transport challenges, including through fostering greater private sector participation in these sectors,” it said.
“South Africa’s economy is facing significant risks. We are navigating this difficult environment with policies that support faster growth and addressing fiscal risks through ensuring a stable macroeconomic framework, implementing growth-enhancing reforms and strengthening the capacity of the state to deliver quality public services, invest in infrastructure and fight crime and corruption.”
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