IMF argues for reform amid weak SA growth forecast

Cape Town - The International Monetary Fund (IMF) said on Wednesday that SA’s subdued economic growth of just 0.7% for 2017 was not likely to improve much next year. 

A delegation from the IMF was in South Africa between October 30 to November 8 to discuss recent economic developments. 

In an ‘end-of-mission’ statement the delegation's head Ana Lucía Coronel said the IMF thought it unlikely that economic growth would pick up next year. 

“Despite South Africa’s institutional strength and favorable global conditions, increasing domestic political uncertainty and stalled reforms point to a challenging economic outlook,” said Coronel.

“Some sectors, including agriculture and mining, are certainly generating growth, but other key activities have stagnated or declined, as investment decisions are being postponed or abandoned.”

Subdued growth 

Coronel said that SA growth would recover only gradually in the medium term, unless the pace of implementation of structural reforms accelerated quickly enough to prompt a clear recovery in business and consumer confidence. 

“Against current structural constraints, the envisaged growth upturn would be insufficient to reverse the ongoing decline in per-capita income and generate enough jobs to absorb the growing labor force,” she said. 

She noted that slow growth and “inefficiencies in public enterprises” had taken a toll on SA's public finances by generating revenue shortfalls.

These tax revenue shortfalls were highlighted in Finance Minister Malusi Gigaba’s October mini budget. 

“Due to lower than expected economic growth this year, gross tax revenue for 2017/18 is projected to be R50.8bn lower than projected in the budget," said Gigaba, when he presented his mini budget statement in Parliament. 

The finance minister added the budget deficit was expected to widen to 4.3% of GDP in 2017/18, far higher than its target of 3.1%.

"Gross national debt is projected to reach 61% of GDP by 2022, with debt-service costs approaching 15% of main budget revenue by 2020/21," said Gigaba.

The state's total revenue shortfall, over three years, may reach R209bn, based on Treasury predictions. 

Improve governance 

Coronel advised the presidential fiscal committee that reforms to improve governance and procurement practices and "remove any obstacles to investment” were essential.

“Special emphasis should be placed on prompt implementation of sanctions against deviations from the Public Financial Management Act to increase deterrence,” she said, adding that the early announcement and timely implementation of a strong adjustment and reform plan should be a state priority to restore investor and consumer confidence. 

“This would increase competition in key markets, reduce input costs for households and businesses, and, in turn, lead to a virtuous cycle between economic growth, job creation, and inequality reduction,” she said. 

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