South Africa must implement reforms to boost private-sector investment, promote good governance and improve the efficiency of public spending to shore up an economy hamstrung by rolling blackouts, the International Monetary Fund (IMF) said.
Severe power outages, known locally as load shedding, coupled with softer commodity prices mean Africa’s most industrialized economy will probably only grow 0.1% in 2023, the IMF said Wednesday after a staff visit to South Africa.
This compares with its January estimate of 1.2% and the National Treasury’s projection of 0.9%.
State-owned company Eskom implemented daily blackouts for more than 200 days last year and on all but one day of 2023. The rolling outages, which started in 2008, are needed to protect the grid from collapse when the company’s old and mostly coal-fired plants can’t meet demand.
The National Treasury is aware of “most of the risks to economic growth” flagged by the lender and is working on measures to address them, it said in a statement. It plans to respond to more detailed analysis and recommendations when the IMF publishes an Article IV report on the country.
Reforms aimed at restoring energy security that attracts private-sector participation in the electricity market and addresses Eskom’s operational and financial challenges may help to bolster output growth and create jobs, said the IMF.
If implemented, a R254 billion ($13.9 billion) debt-relief strategy the Treasury has announced for Eskom “should ensure material improvement in the company’s operation and establish its long-term viability,” it said.
Still, it warned that the plan, together with continued support for other loss-making state companies, spending on temporary welfare grants and increased debt-service costs, will see the budget deficit widen to 6.5% of GDP in the fiscal year ending March 2024, and deteriorate further through 2026.
Creating the conditions for higher economic growth and a reduction in South Africa’s debt vulnerabilities will require stronger fiscal consolidation efforts, including plans to reduce the public-sector wage bill and transfers to state companies while protecting well-targeted social spending and productive public investments, the IMF said.
“South Africa’s public debt is among the highest in emerging markets and is set to continue rising on current policies,” the lender said. “This leaves limited fiscal space to respond to adverse shocks, including contingent liabilities from state-owned enterprises, social spending needs, and climate events. It also exposes the government to increasing borrowing costs, diverting limited resources away from more productive capital and social spending.”
The IMF also recommended that authorities work to broaden the tax base, strengthen the fiscal framework by introducing a debt ceiling, address shortfalls in public procurement and improve public investment management. Last month, Finance Minister Enoch Godongwana ruled out introducing a new fiscal anchor in the country’s budget framework.