IMF worried about SA’s lack of urgency in economic reform

The International Monetary Fund (IMF) is worried about the lack of urgency for economic reform in South Africa, specifically regarding the increase in government debt as it curtails the state’s ability to handle economic and climate shocks.

According to the IMF’s Concluding Statement that describes the preliminary findings of IMF staff at the end of an official staff visit or mission to a member country, South Africa’s economic and social challenges are mounting, risking stagnation amid an unprecedented energy crisis, increasingly binding infrastructure and logistics bottlenecks, a less favourable external environment and climate shocks.

The IMF missions are part of regular consultations when countries want to borrow from the IMF.

The team was led by Papa N’Diaye and met with the economic authorities and other counterparts from the public and private sectors to discuss focus on policies to ensure macro-financial stability and the far-reaching reforms needed to durably lift potential growth, create jobs, reduce poverty and inequality and facilitate the transition to a greener economy.

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Domestic risks to economic growth

The statement pinpoints the domestic risks that include delays in addressing the energy crisis and Eskom’s and Transnet’s operational and financial weaknesses, slower-than-expected progress or reversal in reforms and policies, including fiscal consolidation and increased political uncertainty.

Decisive implementation of structural reforms combined with fiscal consolidation would help boost private investment and ultimately employment and growth over the medium term and similarly, stronger-than-expected private sector participation in the energy sector could improve the growth outlook.

According to the statement, more reforms are needed to address South Africa’s long-standing structural impediments to growth and reforms should aim at improving energy security, fostering private investment, promoting good governance and creating jobs.

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Urgent government action needed

To achieve this, the IMF says government will have to urgently act to:

• Restore energy security which will require private sector participation in the electricity market and addressing Eskom’s operational and financial deficiencies. In addition, conditions for Eskom’s debt relief operation should ensure material improvement in the company’s operation.
• Implement the Just Energy Transition Investment Plan while the ongoing energy crisis provides a window of opportunity for an expedited rollout of renewable energy.
• Alleviate transport logistics bottlenecks as decisive action is crucial  to improve Transnet’s operational efficiency and commercial viability and promoting private sector participation in the transport sector would help increase capacity and boost exports.
• Rationalising state-owned entities (SOEs) as inefficient SOEs place a heavy burden on the budget, siphoning away public resources from other social and infrastructure expenditure priorities, while they also hinder economic growth.
• Foster competition and regional integration by reducing the regulatory burden and other entry barriers to foster competitive product markets and promote private investment, especially for job-creating SMEs.
• Tackle high structural unemployment by ensuring the national minimum wage strikes the right balance between reducing in-work poverty and enhancing the job prospects of disadvantaged groups.
• Promoting good governance by forcefully tackling state capture as South Africa’s economic future depends on it. Criminal prosecution must be strengthened and credible and effective deterrence mechanisms established.
• Tackle gender disparities with gradually advancing the implementation of the Gender Responsive Budgeting Framework as planned and continuing with efforts to decisively tackle gender-based violence.