Don’t put strain on SA’s economic growth, urges IMF’s Lagarde
THE MANAGING director of the International Monetary Fund, Christine Lagarde, said yesterday that South Africa should not undertake fiscal consolidation that will put a strain on economic growth.
The IMF head, who denied she was in South Africa to negotiate a bailout package for the country, said the Washington-based lender wanted the country to opt for policies that favour growth.
“We suggested to the government that there be growth-friendly fiscal consolidation going forward. This does not mean austerity, not cutting across and hair-cutting spending, but spending that would actually favour growth going forward,” Lagarde said.
Speculation was rife that Lagarde’s first visit to the country in more than four years was to spearhead negotiations for a bailout as the country’s debt continues to increase amid transfers to ailing state-owned entities.
The medium-term budget policy statement delivered in October showed that the cost of financing the government’s debt would now exceed the budget by R7.9 billion in the 2020/21 financial year.
The National Treasury said the cost of repaying the debt would surpass the 2018 budget by R1bn and shoot up to R4.9bn in the 2019/20 period.
South Africa’s debt to the gross domestic product (GDP) is fast drifting well north of the 50 percent mark.
Finance Minister Tito Mboweni has already warned that should the debt to GDP ratio hit the 60 percent mark, the country might be forced to approach the IMF for help.
Lagarde also said the lender has faith that land expropriation without compensation would not be implemented in a manner that would hurt the economy.
“We have a few ideas on how we can make the policy practical and well accepted. We appreciate the sort of cross benefit analysis that has been brought to bear in order to support and pursue this process.”
Parliament earlier this month officially called for a constitutional amendment allowing the expropriation of land without compensation.
John Ashbourne, an Africa economist at Capital Economics, said that land reform in South Africa is far more likely to resemble piecemeal Indian reforms than a Zimbabwe-style seizure.
“In India, state governments were given the power to implement land redistribution policies in the 1950s. This included, but was not limited to, a ceiling on land holdings with an aim to redistribute the land to the landless,” Ashbourne said.
“While success differed across states, evidence suggests that the smaller farms were actually more productive following land redistribution.”
Lagarde also gave the lender’s full backing for the commission of inquiry into state capture, saying tackling corruption was positive for South Africa’s growth.
She said previous experience has shown that a strong stance on corruption unlocked economic growth.
“Based on the experience we have from other countries, that attacking head on the issues of corruption can only improve the state of the economy… it is certainly the president’s (Ramaphosa’s) endeavour to get to the bottom of it and support the programme of removing state capture,” Lagarde said.