Budget 2022

IMF wants South Africa to speed up reforms, urgently

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The International Monetary Fund has urged the SA government to speed up reforms to revive the economy.

The IMF has published the outcome of consultations with Treasury, which were held in November 2019. The IMF visits South Africa twice a year to assess government policies and provide policy recommendations.

Strong potential, weak growth

The IMF found that while South Africa had "undeniable, untapped economic potential", risks to the economy going including weak growth, deteriorating fiscal and debt positions as well as difficulties in the operations of state-owned enterprises persisted and continued to undermine potential.

Externally, the performance of the global economy has an impact on South Africa, as an open, small economy.

The IMF recommended that South Africa create a conducive environment for private sector investment and take a decisive approach to implementing structural reforms in order to boost economic growth.

"These include reducing the cost of doing business, streamlining operations of SOEs, releasing the spectrum, improving governance, promoting competition in product markets and addressing labour market issues," the IMF stated.

"Government has progressed in implementing many of the reforms to revive the economy, however, more urgency is required in the speed of implementation."

The documents, detailing engagements between the South African government and the international fiscal assessment authority, come as South Africa struggles to get to grips with assisting parastatals including Eskom and South African Airways, which is currently in business rescue.

The IMF based its finding on the assumption that partial reform implementation and continued governance improvement would lift business confidence and gradually allow a limited recovery of investment and consumption.

"It forecasts South Africa's growth to gradually increase from 0.4% in 2019 to 0.8% in 2020 and to 1% in 2021. However, it warns that per-capita growth will continue to contract in the near term," the IMF stated. 

Decisive approach to reforms

National Treasury responded, saying projected short-term growth for South Africa was subdued, but that it expected a stronger recovery in confidence moving forward that would result in GDP growth of 1.7% by 2022.

"Average inflation expectations for 2019 have fallen from 6% to 4.5%. Most recently, in January 2020, the South African Reserve Bank cut its repurchase rate by 25 basis points, taking into consideration inflation expectations," Treasury said.

Treasury said failure to address governance and operational issues at state-owned enterprises would continue to weigh negatively on the outlook.

"National Treasury is mindful of the fiscal risks that SOEs, particularly electricity utility Eskom, present to the fiscal framework. Furthermore, there is commitment to resolve the challenges facing SAA," Treasury responded.

Treasury said government made progress in implementing many of the reforms to revive the economy and remained committed to implementing prudent fiscal policy to achieve a low primary balance, excluding Eskom provisions, by 2022-23 in order to ensure a stabilisation of debt by 2025-26.

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