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South African authorities should deepen the fight against corruption and change its labour and product markets as some of the nation’s post-apartheid achievements have “recently unwound” amid slow economic growth, the International Monetary Fund said.
IMF directors recommended “the forceful application of the Public Financial Management Act to increase deterrence against corruption,” the Washington-based lender said in a statement Monday. They called for the completion of pro-investment, job-creating measures in the telecommunications and mining industries, and said more progress is needed to contain fiscal risks from debt-laden state-owned companies.
IMF officials issued the statement after so-called Article IV consultations with local authorities.
South Africa hasn’t grown at more than 2% since 2013. Bailouts for troubled state-owned enterprises such as Eskom and South African Airways have raised risks that National Treasury will breach its spending limits. Probes by the former Public Protector indicated that billions of rand was looted from state companies by businessmen and officials with close ties to former President Jacob Zuma. They all deny wrongdoing.
“The country has potential but the key challenge is to raise growth,” Montfort Mlachila, the lender’s senior resident representative in the country, said by phone. “Without increasing growth, you’re really just shuffling the chairs on the deck - you need to expand the size of the pie.”
Per-capita economic growth has turned negative, the jobless rate is near a 15-year high of 26.7%, and income inequality is among the highest globally, the IMF said. Business confidence has slipped every month since reaching a more than two-year high in January as industries await real reforms under the tenure of President Cyril Ramaphosa.
Fiscal risks
“Significant vulnerabilities arise from fiscal risks related to weak and poorly managed state-owned enterprises,” the IMF said. The state’s guarantees of Eskom’s outstanding securities total about 7% of gross domestic product, Treasury data show.
The lender maintained its forecast for economic growth this year at 1.5% and left the 2019 estimate at 1.7%.
The current-account deficit will probably expand to 2.9% of GDP this year and 3.3% in 2019, it said. In its February budget, the National Treasury forecast a gap of 2.3% for this year and 2.7% in the following 12 months. The deficit was 2.5% of GDP in 2017.
“External risks include large gross external financing needs, and a current-account deficit financed by flows that are prone to sudden reversals in response to abrupt changes in global financial conditions and sovereign credit ratings,” the IMF said.
The government is committed to reducing the deficit and stabilizing debt, the National Treasury said in an emailed statement after the release of the report.
