The International Monetary Fund (IMF) said South Africa must urgently reform its anti-corruption measures to increase growth and reduce unemployment, poverty, and inequality.
Staff from the IMF consulted with South African officials from 1 to 17 March as part of their routine economic surveillance.
These officials were from government, the South African Reserve Bank (SARB), state-owned enterprises, parliament, business, labour, and academia.
The consultation will culminate in the IMF Article IV Report on South Africa, which is set to be published later this year.
The IMF highlighted South Africa’s large external asset position, low levels of foreign currency debt, diversified economy, sophisticated financial system, and flexible exchange rate regime as points in the country’s favour.
It also noted the SARB’s pro-active monetary policy which has kept inflation expectations anchored.
“These features provide a favourable base for growth, as fiscal and structural challenges continue to be tackled, including through Operation Vulindlela,” said the IMF.
On the policy front, the government has made important headway on domestic revenue mobilization and removed licensing requirements for embedded power generation.
It has also announced a plan to create private sector participation in transmission infrastructure, completed the spectrum auction, and has taken steps to improve third-party access to the country’s ports and freight network.
The IMF noted the announcement of anti-corruption measures made following the judicial recommendations of the Zondo commission but said that more reform is needed.
“This progress is welcome and needs to be sustained, but further reforms are urgently needed to lift potential growth, create enough jobs to reduce unemployment, absorb new entrants into the labour force, and reduce poverty and inequality.”
The IMF said South Africa risks stagnation due to the country’s energy crisis, deteriorating infrastructure, and logistics, a less favourable external environment, and climate shocks.
While a recovery in South Africa’s services sector spurred job creation in 2022, the IMF affirmed that employment remains below pre-pandemic levels and unemployment close to record highs.
“In addition, the economy remains exposed to external shocks and capital flow volatility, in the context of tighter global financial conditions, and volatile commodity prices related to Russia’s war in Ukraine.”
The IMF explained that South Africa’s high public debt limits the country’s ability to respond to economic and climate shocks while meeting social and developmental needs.
The National Treasury took note of the main findings from the IMF staff following these consultations.
“National Treasury is aware of most of the risks to economic growth and is working on mitigating measures to address these, as detailed in the 2023 Budget Review,” it said in a statement.
“Treasury awaits the Article IV report and will respond to the more detailed analysis and recommendations when the report is published.”