The IMF has pointed to “upside risks” to SA’s economic growth rate, saying confidence and growth will lift if the government of national unity (GNU) can deliver faster economic reforms.
It also urged the government to use the opportunity of a fresh mandate to reinvigorate the reform process.
Its comments, in a routine update on SA’s ability to repay its Covid-era emergency loan from the IMF, are the first from the Washington-based lender on SA’s economy since the GNU took office after the elections.
And though the fund has not changed its baseline projections for SA, the tone of the report is more positive than the gloomy picture it painted in its Article IV annual report on SA in June 2023, when it said SA’s strong post-Covid economic recovery was “petering out” and warned that far-reaching reforms were urgently needed.
The latest report, which follows a visit by the IMF team to SA in early July, takes a balanced view of the risks, saying: “Faster reform implementation supported by the GNU represents an upside risk to confidence and growth. On the downside, an inability of the GNU to agree on reforms, a slowdown in trading partner growth, intensification of geopolitical tensions and tighter global financial conditions could weigh on the outlook.”
The IMF is due to visit SA again late this year ahead of its next Article IV report, which is expected to be published early next year, when it may well revise its baseline economic and fiscal numbers.
But it is required to conduct regular assessments of countries’ ability to repay it when its lending to them exceeds a certain threshold, hence the 20-page post-financing assessment report released this week. The report concluded that SA had “adequate capacity”, even in a downside economic scenario, to meet its obligations to the fund.
SA took advantage of the emergency rapid financing instrument created by the IMF in the depths of the Covid pandemic to borrow $4.3bn at a very low rate of interest in July 2020. The five-year loan had a three-year grace period, so SA has already started repaying it, and will soon fall below the threshold.
The Treasury said on Wednesday that the government had had constructive engagements with the IMF. “While recognising the macroeconomic challenges highlighted by the IMF, the SA government has affirmed its commitment to prioritise rapid, inclusive and sustainable economic growth to tackle prevailing high levels of poverty and inequality,” Treasury said.
“The newly established government of national unity is firmly committed to addressing immediate and long-term economic challenges,” Treasury said.
The report said SA’s economy had been resilient in the face of challenges but its persistent structural challenges risked further eroding living standards. It said bottlenecks to growth had eased but had not been eliminated.
IMF economists’ baseline forecast is still that SA’s economy will grow by 1% this year and by 1.4% over the medium term — without an acceleration of structural reforms.
This is lower than the Treasury’s February budget forecasts or the latest Reserve Bank forecasts.
They also see the public debt ratio continuing to rise over the medium term, whereas the national budget projected it to stabilise next year at just more than 75% of GDP. The report urged the government to cut its debt to 60%-70% of GDP in the next five to 10 years.
This would require at least three percentage points of “growth-friendly” fiscal consolidation, including measures such as raising the efficiency of public spending, limiting public sector wage increases, reforms to state-owned enterprises (SOEs) and better-targeted subsidies for tertiary education.
The Treasury said it was committed to stabilising debt and it continued to target its expenditure ceiling. It would focus on the outcome of the 2025/26 wage agreement “to ensure a fiscally sustainable settlement”. It would also focus on fiscal reforms to improve the quality and sustainability of public spending and on reducing the risk from SOEs.
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