IMF urges SA to be more forceful in reforms
In response, the government has reiterated its commitment to cut debt and make policy clearer
In response to a sombre assessment of the economy by the IMF, the government has reiterated its commitment to reducing debt, ensuring fiscal sustainability and tackling policy uncertainty to attract investment.
The IMF acknowledged in its annual Article IV report on the SA economy on Monday that while things were improving, huge challenges remained.
It highlighted several impediments to growth, including policy uncertainty and regulatory overreach that hindered private investment, inefficient state-owned enterprises (SOEs), labour rigidities, insufficient competition and corruption.
The IMF is also concerned about the rapid increase in public debt, which has doubled as a share of GDP over the past decade to 53% in 2017, and is set to continue climbing over the medium term. This has depleted fiscal buffers and constrained fiscal policy space.
The fund suggested the government implement a more realistic expenditure ceiling or add a debt ceiling to curb the debt trajectory.
Though the fund expects economic growth to pick up and average about 1.8% over the medium term (against the Treasury’s estimate of 2.1%), this mild, mostly cyclical recovery will not dent unemployment and inequality.
With per capita income barely set to grow over the medium term, the worry is that fiscal and social pressure will mount and so too will demands for populist redress.
As such the IMF exhorts the government to implement its reform agenda more forcefully.
Responding on Monday, the Treasury said: "The government continues to prioritise job creation and improving investor confidence through addressing policy uncertainty to attract investment."
It pointed out that SA will host a jobs summit this year to bring together business, labour and government with the objective of boosting employment.
An investment conference will also be held with the aim of realising the president’s $100bn investment target over the next five years. "Government concurs with the IMF’s views on the urgency to advance the implementation of our reform agenda as set out in the National Development Plan," the Treasury added, asserting that "steady progress" was already being made. This included the establishment of a Presidential SOE Council and the issuance of a new draft of the Mining Charter for public comment.
With regards to improving governance, SA had announced board changes at SOEs and was addressing their financial management challenges.
The Treasury acknowledged that maintaining fiscal sustainability was necessary to ensure a stable platform for growth and reiterated the government’s commitment to reduce the deficit and stabilise the country’s debt.