daniel chigunwe
The International Monetary Fund (IMF) has stressed the urgency that South Africa needs to implement reforms after projecting that the country’s economy will face a recession this year.
The IMF concluded the Article IV consultation with South Africa this week and predicted meagre growth of 0,1 percent for 2023, as the country faces record power outages which are throttling the economy.
It said South Africa’s challenges are stacking up despite a robust bounce back from the Covid-19 pandemic, which reflected in real output growth moderating to 2 percent last year, from 4,9 percent in 2021, partly due to the impact of floods, load shedding, and strikes. These factors heavily weighed on key industries such as manufacturing, mining, and agriculture.
The IMF’s warning comes just as South Africa managed to narrowly skirt a recession after data from Statistics South Africa (Stats SA) showed the country’s GDP expanded by a mere 0,4 percent in the first quarter of 2023.
“Business and consumer confidence remain weak. The sovereign spread for South Africa remains higher than the pre-pandemic average, partly reflecting weaker investor sentiment toward the country,” the IMF said on Tuesday.
SA’s high level of unemployment was among the IMF’s concerns for the country, while Eskom’s debt relief arrangement, pressures presented by a growing wage bill, and rising debt service were also cited as worrisome.
The IMF said slow progress in implementing reforms and, in some cases, a reversal of those already actioned in fiscal consolidation pose a risk to potential growth.
“Additional materialisation of SOE contingent liabilities would intensify the pressures on debt sustainability. Slower growth would dent poverty reduction and job creation, with risks to social cohesion.
“Political uncertainty and a lack of resolute progress in addressing the domestic energy crisis would likely reduce investors’ confidence,” it said.
In response to the IMF’s consultation, National Treasury said it is aware of the downside risks threatening economic growth, adding that the government is working on further measures to address the concerns.
“National Treasury will 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,” it said.
In managing borrowing costs, National Treasury said it plans to continue maintaining an active debt-management strategy.
“The Eskom debt-relief programme and unbundling process provide a clear path for the financial future of the utility while reducing contingent liabilities. Government has stepped up efforts to increase private participation in network industries and is considering recommendations to rationalise public entities,” it said.
It said it would also seek to finance social distress grants in a deficit-neutral manner, adding that its prioritising the implementation of structural reforms, particularly in addressing the country’s electricity and transport challenges. — Moneyweb
Bongani Ndlovu