South Africa is heading straight for the IMF
It’s more banter than an exchange of information, but every time I see finance minister Enoch Godongwana I ask: “How are you?” It’s a real concern, though. Often I have been more direct and said: “Your health status matters to the markets.” Almost without fail, he responds by pointing out that I have gained weight in recent years, and we both laugh.
He is no spring chicken, and it would not surprise me if he has an underlying health issue. But the rumours of his ill health look dramatised by opportunistic politicians. Waiting in the wings are ambitious politicians like minister of electricity Kgosientsho Ramokgopa who probably fancy their chances — hence the rumours about his health. Ramokgopa is patently incapable and should not be allowed within 100m of a serious portfolio, despite his running around pretending Eskom reports to him.
Godongwana faces a taxing week, having the impossible task of presenting an election-year budget when there is no money in the vault. Yet the country’s needs are ever-increasing. South Africa is galloping headlong towards fiscal ruin. Debt is rapidly becoming a big problem. Former National Treasury director-general Dondo Mogajane says South Africa should try to avoid a debt trap in which it has no option but to approach the IMF.
Mogajane’s views are interesting. He left the Treasury two years ago and has resurfaced in the private sector. In a newspaper article last week, he warned that South Africa faces the prospect of having to ask the IMF for a bailout if steps are not taken to strike a balance between the immense demands placed on the fiscus, the budget deficit and rising debt levels “before these get out of hand”.
Writing in the Sunday World, he said South Africa faced the prospect of a debt trap: “The forecast budget deficit has been revised from 4% in the 2023 budget to 4.9%, while public debt as a percentage of GDP has been revised upwards to peak at 77.7% in 2025/26, rather than 73.6%, moving [the country] dangerously close to a debt trap. This is a sharp increase from the 70.9% debtto-GDP ratio seen in 2022/23, and an even [steeper] incline from the 53.3% ratio of 2017/18, demonstrating the real impact of the pandemic era and ongoing macroeconomic shocks and weaknesses.”
Mogajane has raised what many economists have been warning about for some time — South Africa’s debt spiralling out of control. When economic growth is nonexistent, debt against
GDP can be a frighteningly heavy burden, especially for an economy as vulnerable as ours. Government bonds will attract investors searching for good yields, but that only means the public pays more in debt-service costs, as the risk premium climbs higher. To work around the issue of expensive debt, the government will increasingly see the IMF and the World Bank as preferable lenders, owing to their low interest rates. Some economists believe these institutions have good monitoring capacity — something South Africa lacks. As a result of poor monitoring, implementation is our Achilles heel.
Some of the IMF’s programmes have a bad rep, especially among structural economists and in political circles, and for good reason. Structural adjustment programmes, for example, have painful attendant conditions. They diminish sovereignty. The politics of IMF conditionality is a well-studied affair. There’s widespread recognition that such programmes are difficult to exit, and that success is rare.
South Africa was praised for stabilising its economy after 1994 without the IMF stabilisation programme gun to its head. What South Africa achieved was a huge feat, akin to what could be expected from powerful economies like the US, Japan and the UK, who traditionally implement their own stabilisation programmes without resorting to the IMF.
This country may soon be a perfect candidate for IMF help because it lacks the political will and administrative ability to implement its policies independently. Most of our politicians are happy to increase spending, but not on interventions that will crank up the economy. Instead, money goes towards civil servants, and social security costs have risen consistently over the last two decades.
The language of having to swallow bitter pills and tighten belts has been a common feature in budget speeches over the past decade and a half. But none of Godongwana’s predecessors have been able to implement an austere fiscal policy. Part of the problem is that fiscal policy is seen as the only lever.
Another problem is that Godongwana is one of only a few ministers with the kind of economic policy nous that could help us navigate times as complex as these.
In my home language, we say ibhasi ibhaliwe (the destination is written on the bus, and therefore there’s no need to ask about it), and South Africa’s destination is that of seeking outside help. But this may be a political conversation for another administration, or later this year when or if Godongwana and his party do return to government after the elections.The political destination may be hard, but the economics of seeking cheaper debt may well take us there.