Time to start praying

ECONOMY: UNDER THREAT EVEN IF REFORMS GET ON TRACK

President Cyril Ramaphosa’s efforts to reform the economy can easily become a case of too little, too late. Since taking office in 2018, he has initiated much-needed reform, but the sluggish pace of implementation, along with the sad state of the country’s finances, leaves SA especially vulnerable should it have to go through an economic shock like the 2008 global financial crisis.

The current weakness can be seen in how well the country was positioned when it went through that crisis. Back then, SA had a budget surplus of 0.9%, with the repo rate sitting at 3.9%. When the government announces its national budget in a few weeks’ time, SA will probably see the deficit increase to 6.5% and repo rates at 6.5%.

The International Monetary Fund (IMF), a lender of last resort for countries that have managed to get themselves into trouble, is not blind to the threats SA faces.

Its 2019 Article IV Consultation Report on SA, says besides issues such as the high public sector wage bill and the debt of state-owned enterprises, SA’s efforts to reform its economy could be upended by events outside its control.

The IMF’s Risk Assessment Matrix rates the likelihood of “rising protectionism and retreat from multilateralism”, “sharp rise in risk premia” and “weaker-than-expected global growth in US, Europe and China” as high in the short to medium term.

Apart from medium level risk of a downturn in the US economy, the IMF’s outlook for global risk is rather negative.

Locally, the fund says there is a medium level of risk that governance setbacks or delays in the implementation of reforms will result in protracted domestic policy uncertainty, and that low growth will lead to a deterioration in banks’ liquidity conditions.

It also notes the risk regarding Eskom’s inability to pay its R450 billion debt, and indicates that the threat of government losing the market’s confidence as a result of “excessive budget deficits or other policy missteps” is high.

According to the report: “On current policies, [IMF] staff projects a lacklustre growth recovery to 1.5% in the outer years.”

Time to pray the heavens are with us.