IMF trims SA growth forecast on policy uncertainty
Lender warns that structural bottlenecks will continue to weigh on investment and productivity
Less than a month before the general election, the IMF has taken a grim view on SA’s growth outlook.
The Washington-based lender cut growth forecasts to 1.2% for 2019 from 1.4% and 1.5% for 2020 from 1.7%. It kept growth forecasts unchanged in January, but had revised down significantly in October 2018.
This is below the Treasury’s forecast of 1.5% for 2019 and the Reserve Bank’s projection of 1.6%.
"The projected recovery reflects modestly reduced but continued policy uncertainty in the SA economy after the May 2019 elections," the IMF said in its World Economic Outlook released on Tuesday.
This follows a warning from S&P Global Ratings that SA’s growth remained too low for a ratings upgrade.
The credit-rating agency cut SA’s debt assessment to sub-investment grade in April 2017, after then president Jacob Zuma fired Pravin Gordhan as finance minister in a surprise cabinet reshuffle.
In November, S&P affirmed SA’s long-term currency debt at BB+, the first notch of sub-investment grade, with a stable outlook.
"The new administration can push growth past the 1.6% mark [but] growth is still not going beyond 2%.
"For ratings to go higher, you need more than that," S&P associate director and primary credit analyst for SA Gardner Rusike said at the agency’s annual conference in Johannesburg on Tuesday.
Rusike said the biggest concern for S&P was economic growth and the effect it has on fiscal consolidation.
The economy has not grown more than 2% annually since 2013 and is struggling to gain momentum despite political changes and Ramaphosa’s efforts to implement policy reforms to boost economic growth and lure investment into the country.
"Our base case is that the ANC wins the election and continues with the structural reforms that they started, particularly reforms that encourage investment which will see higher economic growth," Rusike said.
S&P expects growth to improve to 1.6% in 2019 based on an improvement in terms of trade, a low base and the new administration under Ramaphosa.
It is a far cry from the 3% Ramaphosa targeted when he took office in February 2018.
World Economic Outlook April 2019
The economy faltered at the start of 2019 and persistent power supply cuts threaten to drag growth down further.
"What makes our job easier is when the government can explain what it is doing to boost economic growth. That’s why we started with a constructive view.
"We know investment is lacking, but if government’s commitments can translate into actual investment, you have a chance to reduce poverty, inequality and unemployment," Rusike said.
The IMF, however, warned that structural bottlenecks would continue to weigh on investment and productivity.
"Structural reforms, particularly to product and labour markets, would foster an environment conducive to expanding private investment, job creation, and productivity growth," said the IMF.
It called for gradual fiscal consolidation to stabilise the public debt.
Transfers to state-owned entities should be contingent on downsizing and eliminating wasteful expenditure, while public wage savings should be prioritised to boost investment growth, the IMF said in its outlook.