RAYMOND PARSONS | IMF cuts South Africa’s growth outlook as global pressures test policy choices

Not unexpectedly, the IMF this week cut its forecast for South Africa’s 2026 GDP growth to 1% from 1.4%, citing the ongoing global energy crisis. It was a salutary reminder that adjusting to global economic shocks is never easy or painless.

Although the IMF expects South Africa’s growth performance to recover in 2027, much also now depends on how South Africa responds to unprecedented global factors to avert a worse-case scenario.

The IMF survey suggested guidelines on how, in these challenging times, countries like South Africa could best reconcile economic growth concerns and social support needs with fiscal sustainability.

As cost pressures build, it requires a skilled tightrope walker to balance the need to face fiscal facts and high debt-to-GDP ratios, on the one hand, with the claims of common humanity on the other. It also presages tough wage negotiations ahead for South Africa this year.

The economy will therefore be lucky to escape with a minor setback to growth and a temporary bout of inflation in 2026. Superimposed on the elevated oil price itself on April 1 were higher fuel and Road Accident Fund levies, adjusted carbon taxes and higher Eskom tariffs.

The GNU announced last-minute short-term relief in the fuel levy on March 31 to partially cushion the negative effects of global developments.

A ministerial task team has been appointed to co-ordinate the government’s response holistically to mitigate the impact on the cost of living, fuel and food security.

Circumstances again dictate the need to accelerate the pace of growth-friendly reforms that tangibly promote investment, diversification and delivery

Its challenge will be to interrogate the need for fiscal reprioritisation, identify what trade-offs are required, and expedite reform of the fuel price structure. The task team’s overhauling of the fuel price configuration is urgent. Timelines should be set. A decision on the future of the temporary but partial fuel levy relief must be taken soon.

The cost to the fiscus of R6bn a month may seem infinitesimal in a budget spend of more than R2.7-trillion, but clearly cannot continue indefinitely without further assistance being integrated into a realistic economic game plan.

In an overall strategic approach, the ministerial team’s immediate response must be, first, to provide targeted relief with sunset clauses to vulnerable households and sectors; and second, to accept that, while the crisis may feel temporary, it is also structural. Business has a critical role to play in fast-tracking investment in alternative energy and improving supply chain resilience.

The economic outlook and its vulnerabilities, nevertheless, again remind us of why, in South Africa, many roads — be they to higher investment, more job creation or increased tax revenues — ultimately lead through faster, inclusive economic growth.

Growth is not “a cure for all diseases, an end to all distress”. But it makes other socioeconomic aims easier to attain and softens conflict among them. After all, the GNU recently set a GDP growth target for South Africa of 3.5% by 2030.

So, on the positive side, there was indeed recent convincing evidence that South Africa’s business cycle had reached a decisive turning point. Various “green shoots” of economic recovery were widely identified. Inflation was being contained, and interest rates were being reduced, together with a well-received budget. South Africa therefore has resilience to draw upon.

Nonetheless, although there has been recent evidence of positive structural change, such as in transport, circumstances again dictate the need to accelerate the pace of growth-friendly reforms that tangibly promote investment, diversification and delivery. The recent sixth Presidential Investment Conference had the merit of again highlighting total fixed investment as the main driver of sustained economic growth.

As the economy seeks to adapt to a far-reaching, changed global outlook, South Africa needs to find the right trade-offs in the supportive policies now required. In a world of elevated uncertainty, South Africa’s economic resilience will depend less on perfect policy choices and more on timely, credible and co-ordinated action. Good economic steersmanship must continue to now keep the economy on track with flexible and adaptable responses to powerful global headwinds.

• Parsons is a professor at the North-West University Business School and extraordinary professor at the University of the Western Cape