IMF warns SA public debt needs urgent fix

THE INTERNATIONAL Monetary Fund (IMF) yesterday raised concerns about South Africa’s fiscal policy in relation to the rapid increase in public debt as a share of GDP, which has doubled over the last decade.

In the outcome of its Article IV consultation with South Africa, the IMF said risks related to potential bailouts of state-owned entities (SOEs) would further constrain fiscal policy.

President Cyril Ramaphosa announced last week that the government had signed several agreements, including memorandums of understanding on investments, amounting to $14.7 billion (R193.2bn) with China.

Various government departments signed agreements with the Chinese government in areas such as the simplification of visas, while SOEs such as Eskom and Transnet and private sector companies Standard Bank and Naspers also signed agreements.

In a statement yesterday, the National Treasury said steady progress had been made with regard to structural reforms, including the establishment of a presidential SOE council and the issuance of a new draft of the Mining Charter for public comment.

“With regard to improving governance, South Africa has announced board changes at SOEs and is also addressing financial management challenges facing SOEs.”

The government concurred with the IMF’s views on the urgency to advance the implementation of a reform agenda as set out in the National Development Plan.

Projection

The IMF kept the country’s growth forecast of 1.5 percent for this year unchanged from its World Economic Outlook projection in April, which is in line with the National Treasury’s projections at the time of this year’s Budget.

The Treasury said its baseline growth outlook was broadly aligned with the IMF’s projections for the near term, but more optimistic over the medium term.

“National Treasury projects GDP growth of about 2.1 percent in the medium term… supported by a greater recovery in private consumption and public investment due to the ongoing improvement in confidence.”

While the IMF acknowledged South Africa’s recent reform efforts to combat corruption, it argued that to improve growth and reduce poverty, these actions needed to be followed by strict enforcement of good regulations.

The IMF deemed the current monetary stance appropriate, but emphasised that monetary policy authorities should be cautious given fiscal risks and the need to build buffers.

As part of its surveillance mandate prescribed in the IMF’s Articles of Agreement, the IMF visits each of its member countries annually to conduct an economic and financial assessment of the government policies and provide policy recommendations. During the consultation, the IMF met with various stakeholders, including government, SOEs, business, organised labour and academia.

The IMF acknowledged that South Africa’s economy remained well integrated in the global economy, is diversified and has a sophisticated financial services sector. It welcomed initiatives to further buttress financial sector stability, including the new Financial Sector Regulation Act.