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SA needs 'bold reforms' to boost growth - IMF

Jun 12 2018 16:52
Jan Cronje

While growth in South Africa is expected to be higher in 2018 than last year, it will still be too low to to make a meaningful dent in unemployment, poverty, and inequality, according to a visiting International Monetary Fund mission. 

The IMF team, in South Africa between May 28 and June 11 as part of a routine visit, called for "bold reforms" to boost growth above the 2% per annum level.  

In its concluding statement, published on Tuesday afternoon, the delegation said that while strong institutions and a young workforce mean SA has room to grow, the economy is still being held back. 

"Policy uncertainty and a regulatory environment not conducive to private investment have resulted in GDP growth rates that have not kept up with those of population growth, reducing income per capita, and hurting disproportionately the poor," it said. 

The delegation said that, without economic reforms, the country was unlikely to exceed 2% GDP growth over the medium term. 

SA's real gross domestic product fell by 2.2% in the first quarter of 2018, Stats SA announced earlier in the month.  

Finance Minister Nhlanhla Nene, in turn, said the GDP contraction would mean a downward revision of optimistic predictions for growth in 2018.

The mission praised the government for undertaking reforms at state-owned enterprises including switching out boards, promises to tackle corruption and instituting commissions of inquiry.

But they argued reforms must go further to boost growth in the medium term.  

Bold reform 

The IMF team proposed a "bold reform agenda". 

This included boosting the benefits of social grants by cutting down on intermediation costs, clarifying mining regulation to foster investment, and allocating broadband spectrum to the private sector to increase competition.

The mission said another "quick win" was reducing skill shortages by easing "onerous" visa requirements for hiring foreign skilled workers.

Reforms that would take longer to implement included increasing private-sector participation in the energy sector, enhancing flexibility in the labour market, and improving basic education.

The delegation also said that South Africa's public sector wage bill was too large, both relative to the size of the economy and to that in its peer emerging markets.  

"Rationalising the public-sector wage bill becomes a priority," it said. Such a move would be fought by public sector unions, who last week concluded a wage agreement with the state after months of negotiations.  

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imf  |  sa economy  |  gdp growth  |  state-owned enterprises
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