Enoch Godongwana tabled the Medium-Term Budget Policy Statement in Parliament at the end of September. Picture: Phando Jikelo / Independent Newspapers
Nicola Mawson
The International Monetary Fund (IMF) said South Africa’s economic outlook was improving and activity was recovering, driven by recovering domestic demand supported by renewed post-election confidence, improved power generation with no load shedding since the end of March, and declining interest rates.
An IMF team led by Delia Velculescu visited South Africa on November 11-25 to hold meetings with the economic authorities and other counterparts from the public and private sectors for the 2024 Article IV annual consultation.
Following discussions on policies to ensure macroeconomic stability and the required structural reforms to durably lift potential growth, create jobs, and facilitate the transition to a greener economy, the IMF revised South Africa’s growth domestic product (GDP) growth projections from the 0.9% predicted at mid-year to 1.1% now.
The IMF’s statement follows other positive outlooks for South Africa, including yesterday’s announcement that S&P Global Ratings had upgraded Eskom’s credit ratings, moving the State-owned utility’s long-term global scale foreign and local currency ratings from stable to positive.
In addition, a mid-month note from S&P said it had revised South Africa’s ratings outlook from stable to positive on improved reform programme and economic growth potential. This followed rating agency Fitch’s suggestion that it may upgrade South Africa’s credit outlook.
In a statement following the conclusion of a recent visit to the country, the IMF said yesterday that economic activity was “recovering following a challenging 2023 marked by power shortages and severe logistics disruptions”.
It added that GDP was anticipated to accelerate to 1.5% next year, driven by “recovering domestic demand supported by renewed post-election confidence, improved power generation and declining interest rates”.
In response to the IMF’s statement, National Treasury said it anticipated the same level of growth this year, but that this will be two percentage points higher than the IMF’s expectations next year, in line with the Medium-Term Budget Policy Statement presented towards the end of October.
The IMF also made the point that the “medium-term outlook critically depends on the Government of National Unity’s (GNU’s) ability to fully implement structural reforms addressing impediments to growth”.
However, the IMF noted that risks were to the downside even as it anticipates GDP gaining to 1.8% by the end of the decade. These include a further deepening of geoeconomic fragmentation and intensification of protectionist policies, an escalation of ongoing conflicts, a deeper slowdown in key trading partners such as China, or slower global disinflation.
“Domestically, resistance to and delays in the implementation of needed reforms could weaken confidence, increase financing costs, and erode growth,” it said.
Positivity in terms of domestic confidence, lower financing costs, and higher exports and growth could result from more ambitious reform implementation under the new GNU, or stronger global growth.
“The GNU, in place since June 2024, represents an opportunity to put South Africa’s economy on a path toward higher and more inclusive growth,” the IMF said, which noting that it faces massive challenges in the form of eroding standards of living, unacceptably high levels of unemployment, and poverty, among other issues.
Treasury noted the IMF’s recommendations to consolidate fiscal debt, stating that the government was on track to achieve primary surpluses in 2024/25 and over the medium-term. Debt, Treasury said, was expected to stabilise at 75.5% of GDP in the 2025/26 fiscal year.
“In turn, this will enable government to arrest the trend of mounting debt-service costs,” it said.
“The government is determined to maintain a prudent, disciplined approach to ensure sustainable public finances,” Treasury said.
Treasury also pointed to the progress Operation Vulindlela has made in areas such as reducing power cuts, improving the performance of the logistics system, lowering data costs, improving water supply and enabling the country to attract critical skills through the introduction of e-Visas.
“The next phase of reforms will support higher medium-term growth, which is required to significantly expand employment,” it said.
“The National Treasury is committed to implementing reforms to unlock sustainable and inclusive growth, improve the fiscal position, and bolster the capacity and effectiveness of the State.”
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