IMF sees ‘prominent’ downside risks to SAs outlook

Downside risks to South Africa’s economic outlook are “prominent,” with spending pressures and a higher public-wage bill potentially raising financing costs and damping growth, the International Monetary Fund said.

“Fiscal consolidation is needed to strengthen public finances,” the Washington-based lender said in an emailed statement Tuesday after concluding a visit to the nation with the continent’s most-industrialised economy. While steps announced in the February budget are a move in the right direction, debt will continue to rise in the “medium term” when using the IMF’s more-conservative growth projections, it said.

The South African Reserve Bank forecasts the economy will expand 1.7% this year, compared with the IMF’s 1.5% estimate. This is“insufficient to make a meaningful dent in unemployment, poverty and inequality,” the IMF said.

Gross domestic product hasn’t grown at more than 2% a year since 2013 and is struggling to gain momentum despite political changes earlier this year that bolstered investor confidence. South Africa’s economy shrank the most in almost a decade as Jacob Zuma handed the reins of power to Cyril Ramaphosa, racking up the worst performance of the former president’s tenure.

South Africa’s potential is significant, yet growth over the past five years has not benefitted from the global recovery. Policy uncertainty and a regulatory environment not conducive to private investment have resulted in growth rates in GDP that have not kept up with those of population growth, reducing income per capita, and hurting the poor disproportionately.