Stern warning on SA’s unemployment rate

Global lender the International Monetary Fund (IMF) has issued a stern warning to South African authorities to address unemployment or risk facing political and social instability.

The IMF executive board directors visited the country for consultations with authorities and issued their statement on the visit on Thursday.

They expressed deep worry over the country’s 24.9% unemployment rate, saying that if it was not addressed, the “stubbornly high” rate could become politically and socially unsustainable.

It suggested the country needed to build on its many policy successes to expand employment opportunities, secure better education and health outcomes, and build more efficient infrastructure to support inclusive growth, while maintaining macroeconomic and financial stability in a risky global environment.

The IMF still expects the local economy to grow 2.6% this year, from 3.1% last year, and for growth to recover gradually over the medium term to its potential rate of about 3.5%.

Commenting on fiscal policy, the IMF directors said government debt was still manageable and did not pose any threat to fiscal sustainability.

However‚ it warned that South Africa’s fiscal space to cope with future shocks had “declined considerably”.

The government expects debt to peak at about 42% of gross domestic product (GDP) in the 2014-15 financial year, and to moderate gradually from there.

South Africa’s exposure to the global economy meant that any deterioration would affect the country negatively‚ the IMF cautioned.

It noted that if the external environment were to worsen further‚ the resulting moderation of inflation would allow the Reserve Bank greater room to respond.

Inflation unexpectedly fell to 4.9% last month from 5.5% in June, leading to renewed hope for an interest rate cut when the Bank’s monetary policy committee (MPC) meets next month.

The IMF praised South Africa’s financial institutions, referring to them as “well-capitalised and liquid”.

Banks’ non-performing loans had partly recovered from the effects of the financial crisis, it added.