The International Monetary Fund (IMF) has cautioned South Africa about making overly optimistic economic growth forecasts, fiscal objectives, and debt stabilisation.
In its “Technical Assistance Report-Fiscal Transparency Evaluation on South Africa” released yesterday, the IMF revealed that the country has many elements of sound fiscal transparency practices.
Based on an assessment of fiscal transparency practices against the IMF’s Fiscal Transparency Code, South Africa meets the standard of advanced practice on 12 of the 36 principles, nine principles are assessed as good, the basic standard on a further nine principles while six are not met.
The country has long scored well in the Open Budget Index (OBI) and is now being ranked second out of 120 countries surveyed.
Despite this, the IMF said South Africa has suffered the consequences of serious governance issues over the past decade, including state capture and corruption, as highlighted by the Commission of Inquiry into Allegations of State Capture in 2022.
The IMF said South Africa has made efforts to continue improving reporting practices over time as it made a broad coverage of financial assets and liabilities, with reporting usually timely, and most complete statistics fiscal reports covering almost the totality of expenditure at different levels of government.
However, the IMF said there were areas to improve in fiscal forecasting and budgeting.
“This includes addressing overly optimistic GDP forecasts, including numerical or time bound fiscal objectives that support fiscal and debt stabilisation, tackling major gaps in public investment, and increasing the timeliness of the budget documents for approval before the start of the fiscal year,” the IMF report said.
This year, South Africa gross domestic product (GDP) is forecast to rebound to 1.2%, up from 0.6% in 2023 as the energy and logistic crises wane.
“Stronger scrutiny of the government’s fiscal plans by existing independent institutions would strengthen fiscal credibility,” it said.
“The Fiscal Transparency Code takes a bird’s-eye view of public investment, in the case of South Africa the total multi-year costs are not disclosed in budget documents, cost benefit analysis is undertaken for major projects but not systematically published and there are deficiencies in the procurement system.
“The budget is introduced to the legislature within two months before the end of the fiscal year but is passed several months after the start of the following fiscal year.”
The Technical Assistance Report-Fiscal Transparency Evaluation on South Africa was released yesterday at the start of the week-long IMF/World Bank Group Spring Meetings in Washington D.C.
On state-owned companies, the IMF report also said Eskom remained overleveraged and undercapitalised as a consequence of prolonged underinvestment in maintenance of the existing facilities and new investment infrastructure.
It said concurrent losses over the past years deteriorated Eskom’s equity, and negatively impacted its cash flows.
“Its debt-to-equity ratio fluctuates around 1.7−1.9 over the past three years, by far exceeding the good practice of up to 0.5, indicating that the company’s equity is exhausted to sustain its activities,” it said.
“The Eskom Debt Relief deal came in time to alleviate its high debt burden, which combined with insufficient operational cash flows, reduces Eskom’s options to be financially viable without government support measures.”
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