IMF says Nigeria and SA weigh on Africa's growth
There are spending risks from the public sector wage discussions under way and possible demands for further bailouts from state-owned entities, says the IMF
Powerhouses Nigeria and SA are dragging down growth in sub-Saharan Africa.
The International Monetary Fund (IMF) says political and policy uncertainty have weighed down on investment in SA and stymied its growth.
“Nigeria and SA, the two largest economies in sub-Saharan Africa and its main economic engines, have been stuck in low gear and are weighing heavily on the region’s overall growth,” says an IMF report on the outlook for the region.
However, both Nigeria’s and SA’s economies could experience a confidence boost if policy reforms advanced faster than expected, said the IMF.
Growth in the region is estimated to pick up from 2.8% in 2017 to 3.5% in 2018. SA is lagging, with growth expected to increase from 1.3% in 2017 to 1.5% in 2018.
Investec chief economist Annabel Bishop said if President Cyril Ramaphosa managed to repair the main institutions quicker than expected, this would boost investor sentiment and lift economic growth.
However, while political developments were expected to benefit the policy environment, the IMF said that fiscal deficits continued to widen in SA.
“Higher debt levels have translated into a sharp increase in debt service, diverting resources from much-needed spending in areas such as health, education and infrastructure,” said IMF African department director Abebe Aemro Selassie.
Earlier in 2018, the South African Revenue Service announced that it had come slightly under Treasury’s revenue target for 2017-18, citing record low tax-compliance levels and lack of growth.
“We think the country faces a significant fiscal struggle over the coming years as it tries to rein in the budget deficit and stem the rise in public indebtedness,” said Absa senior economist Peter Worthington.
There were spending risks from the public sector wage discussions under way and possible demands for further bailouts from state-owned entities, he said. “The fiscal burden of SA’s public sector employment has swollen ... since the global crisis due to increases in both the numbers of civil servants and wage settlements, which have outpaced inflation and even private sector pay gains.”
The government will struggle to stick to a promise to cut spending, which helped avert a credit-rating downgrade from Moody’s Investors Service at the end of March, if the public wages debate is not resolved.