Reform urgently or stagnate, IMF warns
The country needs to institute urgent reforms to its product and labour markets to allow the entry of new firms and to reduce impediments to job creation, otherwise the South African economy will be stuck in the doldrums, the IMF warns.
In the absence of such reforms, SA would be unable to bolster confidence and investment or to improve growth.
The IMF expressed these sentiments in its World Economic Outlook report, which it released on Tuesday.
The international lender again placed the country’s growth for 2017 at 0.8%, which local economists viewed as pessimistic. The growth forecast was lowered to 0.8% in October 2016, from 1%.
The Treasury forecast growth for 2017 at 1.3% and the Reserve Bank placed it at 1.2%.
The global economy was set to grow 3.5% in 2017 because of “buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade”, the IMF report said.
SA was likely to benefit from a rebound in commodity prices,
dissipation of the drought and improved electricity capacity.
But Maurice Obstfeld, economic counsellor and director of the research department at the IMF, said on Tuesday that SA would still face difficulties.
“Despite these signs of strength, many other countries will continue to struggle this year, with growth rates significantly below past readings.
“Commodity prices have firmed since early 2016, but at low levels, and many commodity exporters remain challenged, notably in the Middle East, Africa [including SA] and Latin America,” said Obstfeld.
The IMF said SA needed additional measures — such as slower public sector wage increases and a moderate increase in consumption taxes — to stabilise its growing debt ratio if it did not achieve growth that was adequate.
Investec economist Kamilla Kaplan said: “If we don’t achieve growth it means stagnation.
“There will be lower tax revenue, the government debt ratio would increase and we would have to go out to the market and borrow.” Investec had not revised its growth forecast down from 1.1%, said Kaplan.
Finance Minister Malusi Gigaba said last week the Treasury was “completely committed” to previous policies and programmes, and a change in fiscal outlook was unlikely.
On Tuesday, the Treasury released a statement in which it appeared to distance itself from the economic views espoused by Gigaba’s adviser, Prof Chris Malikane, whose opinion piece backing the nationalisation of banks and insurers was published at the weekend.
“The views expressed in the opinion piece are not necessarily government policy,” read the Treasury statement.
However, Econometrix MD Azar Jammine was not convinced. “It’s a huge contradiction. If he keeps policy the same, why has he replaced Pravin Gordhan? There’s also a contradiction between pushing radical economic transformation and keeping policies in place.”