SA must stay on fiscal consolidation path, warns IMF

The International Monetary Fund logo. Photo: File

The International Monetary Fund logo. Photo: File

Published Jan 31, 2024


The International Monetary Fund (IMF) has urged South Africa to stay on its fiscal consolidation path and continue implementing structural reforms as it downgraded the country’s economic outlook for this year.

In its World Economic Outlook (WEO) yesterday, the IMF slashed South Africa’s gross domestic product (GDP) forecast to 1% in 2024, significantly down from 1.8% previously forecast in October 2023.

The IMF’s GDP forecast for 2024 is lower than the 1.2% expected by the SA Reserve Bank in its first forecast for the year issued last week, though they both forecast 0.6% in 2023.

IMF chief economist Pierre-Olivier Gourinchas said South Africa’s persistent energy and logistics crises were going to significantly stifle economic growth this year.

“All of the disruptions we’ve seen in the energy sector and also the logistics, in transportation, freight and ports in South Africa, that needs to be addressed,” Gourinchas said.

“We were talking about the need for fiscal consolidation for South Africa. There is a need also to put public spending under control and to raise tax revenues.”

Finance Minister Enoch Godongwana will deliver his annual Budget speech on 21 February under pressure after he announced wide-ranging expenditure cuts on the back of deteriorating tax revenue.

IMF division chief Daniel Leigh cautioned that South Africa needed to address the governance weaknesses within its state-owned enterprises.

Leigh warned that many countries heading to the polls in 2024 could experience a slower-than-expected implementation of a variety of reforms, including on fiscal policy tightening.

South Africa will hold its 5th democratic general elections this year, and analysts have warned that this posed additional challenges to the already struggling public purse.

“So that could also apply here in South Africa, where there is a need to rebuild budgetary buffers, but there could be pressures as in other countries on the budget not to tighten as much,” Leigh said.

“There could be pressures on reform momentum, and that could drive up debt financing costs. Observers could be concerned about that and the increase in the borrowing spreads.”

Leigh also reiterated that resolving the energy and logistical crises was the top priority in terms of the kind of reforms that would really help to turn things around in South Africa.

“Ensuring that the power plants come back online, connect more renewable energy, and create this kind of conducive environment to attract more private investment, opening up competition, especially in these network industries: energy, ports, rail, telecoms,” Leigh said.

“This is not only in the current context in South Africa but across the region, sub-Saharan Africa. There are a number of structural bottlenecks. And this is what could create the environment to attract that investment, including from richer, advanced countries where there is the capital, to bring it here to this potentially very dynamic region.”

The IMF also warned that logistical challenges - including those in the transportation sector - were constraining activity and acting as a drag on the entire sub-Saharan Africa region.

In sub-Saharan Africa, growth is projected to rise from an estimated 3.3% in 2023 to 3.8% in 2024 and 4.1% in 2025, as the negative effects of earlier weather shocks subside and supply issues gradually improve.

“The downward revision for 2024 of 0.2 percentage point from October 2023 mainly reflects a weaker projection for South Africa on account of increasing logistical constraints, including those in the transportation sector, on economic activity,” read the WEO report.

The IMF also said global growth would rise to 3.1% in 2024, 0.2 percentage point higher up from 2.9% previously forecast in October 2023, reflecting upgrades for China, the US, and large emerging market and developing economies.

However, the IMF kept the forecast for 2025 unchanged at 3.2%.

Global headline inflation is expected to fall from an estimated 6.8% in 2023 (annual average) to 5.8% in 2024 and 4.4% in 2025.