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    Home » News » South Africa must implement urgent reforms, IMF warns

    South Africa must implement urgent reforms, IMF warns

    By Agency Staff31 January 2020
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    South Africa has no fiscal space left and must implement strong budget consolidation and state-owned company reforms to ensure its debt sustainability, the International Monetary Fund said.

    The October medium-term budget policy statement showed gross government debt would surge to 80.9% of GDP in the 2028 fiscal year unless urgent action is taken. That trajectory is almost 20 percentage points higher than forecast in the February budget and showed no sign of stabilising. The fiscal shortfall will widen to the most in 11 years in 2020/2021.

    High deficits have not materially boosted economic growth as intended; instead they drastically lifted the debt-to-GDP ratio “and left South Africa with no fiscal space”, the Washington-based lender said in an e-mailed statement after a staff visit to South Africa.

    Tackling Eskom’s challenges would not only reduce fiscal deficits and debt, but would also boost business confidence

    While the state plans to reduce spending by a total of R50-billion by 2022, it should protect pro-poor social programmes and make education and health delivery more efficient, the IMF said. It also backed finance minister Tito Mboweni’s proposal to reduce the public sector wage bill, which comprises 35.4% of national spending and said the government should reduce the contingent liabilities from state-owned companies.

    Power utility Eskom, which is seen as the biggest threat to the South African economy and fiscus, is the biggest recipient of government guarantees. The company, with R450-billion of debt, resumed controlled blackouts on Thursday.

    Legacy of corruption

    The IMF said tackling Eskom’s challenges would not only reduce fiscal deficits and debt, but would also boost business confidence, encourage private investment, including in green energy, improve macroeconomic policy credibility, and convey a genuine ambition by the authorities to address the legacy of corruption under the previous president.

    The lender also repeated a 2018 call for South Africa to introduce a debt anchor in its budget, which could complement the expenditure ceiling, to guide debt stabilisation.

    National treasury said in a statement that it’s committed to “implementing prudent fiscal policy to achieve a low primary balance, excluding Eskom provisions, by 2022/2023 in order to ensure a stabilisation of debt by 2025/2026”.

    The IMF cut its 2020 GDP growth forecast for South Africa to 0.8% from 1.1% last week.  — Reported by Prinesha Naidoo, (c) 2020 Bloomberg LP



    IMF Tito Mbowei top
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