South Africa must go big or go home

South Africa’s new multiparty government should implement bold reforms to achieve the economy’s full potential, the International Monetary Fund said. 

It should build on the existing reform agenda but “increase its ambition and accelerate implementation to put the economy on a permanently higher and more inclusive growth path,” the Washington-based lender said in its post-financing assessment of South Africa.

“Such a mandate can turn the economy around from the path of weak growth, high debt, and deteriorating living standards toward high growth, fiscal sustainability, and shared prosperity.”

The governing alliance formed after the African National Congress lost its outright majority in the May 29 elections has committed to accelerate reforms, such as increasing energy supply and addressing logistics snarl-ups to boost growth, which has averaged less than 1% over the last decade.

“Structural reforms are paramount to support job creation, growth, and prosperity,” the IMF said.

These include electricity and transportation-sector reforms that foster private sector participation, remove obstacles to trade, and strengthen governance, complemented by prudent monetary and financial policies, it said.

The lender expects Africa’s most industrialized economy to grow 1% in 2024 and 1.3% next year. 

Other highlights 

• South Africa’s fiscal deficit is projected to remain elevated over the medium term, given rising debt-service costs, support to state-owned enterprises, and sizable spending on public wages and transfers.
• Debt remains on a non-stabilizing path in the medium term.
  • An “ambitious” fiscal consolidation of at least 3 percentage points of gross domestic product is necessary to rein it in sustainably.
  • Given the high fiscal vulnerabilities, the IMF recommends reducing debt to around 60% to 70% of GDP in the next five to 10 years.
• General government deficit forecast at 6.2% of GDP for the 2024 fiscal year — higher than the authorities’ estimate.
  • This is largely due to higher spending on state-owned power utility Eskom Holdings SOC Ltd. support at 0.8% of GDP
  • “The primary surplus reaches only 0.6% of GDP by FY29, insufficient to stabilize debt.”

South Africa will provide a further update on its debt metrics when Finance Minister Enoch Godongwana delivers his mid-term budget on Oct. 30.