SA urgently needs reforms amid rising risks – IMF

IMF entrance with sign of International Monetary Fund.

The IMF warned that reliance on government spending to boost growth coupled with continuous bailouts to state-owned entities was not sustainable.

The International Monetary Fund has urged more “decisive” reforms to boost private investment in South Africa, forecasting economic growth to remain sluggish for a sixth consecutive year in 2020.

The African continent’s most industrialised country has been dogged by high and rising debt, low growth and record-high unemployment over the last decade.

“A more decisive approach to reform is urgently needed,” an IMF team said at the end of their visit.

“Impediments to growth have to be removed, vulnerabilities addressed, and policy buffers rebuilt,” it said.

“Expediting structural reform implementation is the only way to sustainably boost private investment and inclusion,” it said.

The statement issued late on Monday said while South Africa’s potential was still largely untapped, its recent poor economic performance pointed to “rising risks”.

South Africa narrowly avoided a second recession in two years when the economy grew a surprising 3.1 percent in the three months to end-June, according to the statistics agency.

One of the biggest risks to the economy according to pundits has been posed by the embattled state power company Eskom, which has a 450 billion rand ($30 billion) debt bill despite multiple bailouts from the state.

Last month Finance Minister Tito Mboweni bemoaned the ballooning national debt, saying it exceeded 3.0 trillion rand (US$200 billion) this year and was expected to rise to 4.5 trillion rand (US$300 billion) over the next three years.

The IMF warned that reliance on government spending to boost growth coupled with continuous bailouts to state-owned entities was not sustainable.

The current debt-to-GDP ratio stands at 60.8 percent and is estimated to reach 71.3 percent in 2022-23.

President Cyril Ramaphosa has been under pressure to rein in debt and boost economic growth.

The country is struggling to get state-owned companies back on track after nine years of corruption and mismanagement under former president Jacob Zuma.

S&P Global Ratings last week changed its outlook on South Africa’s sovereign credit rating to negative, citing low GDP growth and a growing debt burden.

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