IMF delivers SA a vote of confidence
Fund revises growth projections upwards Says structural reforms need to be implemented
The IMF has given SA a vote of confidence, revising its growth projections, but also warned that progress would be slow unless structural reforms were implemented.
The IMF expects economic growth to strengthen to 1.5% in 2018 and to 1.7% in 2019. These estimates come after the IMF in January slashed growth forecasts for both 2018 and 2019 to less than 1%.
According to the IMF, the medium-term outlook is subdued, with growth expected to stabilise at 1.8% over 2020–23. Its new projections are in line with the World Bank and the Treasury’s estimates.
The World Bank expects growth to accelerate to 1.4% in 2018 and 1.8% in 2019, while the Treasury forecasts growth of 1.5% in 2018 and 1.8% in 2019.
While expected growth remains subdued at less than 2%, the IMF’s latest World Economic Outlook released on Tuesday says the onset of a new political leadership in SA has reduced policy certainty.
“Business confidence is likely to gradually firm up with the change in the political leadership, but growth prospects remain weighed down by structural bottlenecks.
“Advancement of the outstanding reforms is critical for reinvigorating economic growth and making it more inclusive.”
The Department of Planning, Monitoring and Evaluation said that without stronger economic growth SA would fall short of the goals set out in the National Development Plan (NDP). The NDP aims to eliminate poverty and reduce inequality by 2030. This calls for sustained growth of 5.4% and a 6% decrease in unemployment by 2030.
On Monday, President Cyril Ramaphosa said the government had addressed governance issues at the South African Revenue Service; was in the process of finalising the Mining Charter; and had made progress in stabilising stateowned entities.
While policies and strategies for infrastructure investment, education and health, and enterprise development were in place and had played a role in the government’s efforts to
reduce poverty and inequality, implementation had not been strong and rapid enough for the necessary progress towards achieving the goals of the NDP, the department’s secretary of planning, Tshediso Matona, told Business Day on Tuesday.
The reforms recommended by the IMF include improving infrastructure; reducing barriers to entry in key sectors; improving the efficiency of government spending in order to attract investment; and promoting growth and job creation.
“Economic growth and unemployment rates targets are still lagging behind. For the country to achieve the NDP objectives we need to get the economy back on track.
“The country needs to attract investments to boost economic capacity and to move to an economic trajectory that will enable us to achieve the objectives for poverty and inequality reduction Ultimately this will enable the country to achieve the NDP objectives in the next 12 years.”
Ramaphosa is looking to attract $100bn in investment over the next five years by revitalising the relationship between the government and business through special investment envoys.
The Treasury estimates that an improvement in confidence alone, which SA has seen in recent months, could add 0.5 percentage points to GDP. Added to that, effective reforms could add two to three percentage points to GDP.
But Marek Hanusch, a senior economist at the World Bank, said the economy did not work on confidence but rather it required investment.
Last week, the World Bank said the NDP might be a dream deferred without structural growth in the economy. In order to achieve the NDP targets, growth would have to be 8%, said Sebastien Dessus, the World Bank’s programme leader for SA. “Long term we don’t see growth going to 5%. You need higher investment, higher innovation and broader participation,” Dessus said.
GDP grew at a quarterly rate of 3.1% in the fourth quarter of 2017, up on the 1.8% expected by economists. The rate for the full year came in at 1.3%, beating the Treasury’s estimate of 1% in the February budget.