Eskom is the one big problem Ramaphosa can’t solve by throwing money at it: IMF

The International Monetary Fund (IMF) has concluded its latest visit to South Africa, citing concerns around South Africa’s widening debt problems.

Amid challenging global economic conditions, South Africa’s growth outlook will depend critically on the pace of implementation of reforms that address long-standing structural constraints, said mission leader Ana Lucía Coronel.

Despite this, there is a sense of cautious optimism about economic prospects as the new government formulates its policy agenda following President Ramaphosa’s election, she said.

“If reform implementation accelerates sufficiently to lift business confidence and jump-start private investment, growth would be reignited,” said Coronel.

“However, if reforms are delayed, investment would fail to pick up, economic growth would remain weak in the medium term, and per-capita income would continue to decline.

“With underexploited export potential, the external position would remain weak and the current account deficit financed mainly by non-FDI inflows.”

Cornel said that South Africa’s fiscal deficit is set to worsen as weak growth constrains revenue, current expenditure remains rigid, and public enterprises require additional support.

As a result, debt pressures are likely to further increase in the near term, she said.

“Weak finances and operations of public enterprises, particularly Eskom, represent a major downside risk to growth and the fiscus.

“Against this background, action is needed to reduce the fiscal deficit, reverse the ongoing increase in public debt, and restore much-needed fiscal buffers to protect the government’s development objectives and its ability respond to shocks.”

Can’t keep throwing money at the problem

A focus on policy actions to remove long-standing structural constraints to growth and accelerate job creation is a must, said Coronel.

“The government has a renewed opportunity to press ahead with policies to further strengthen governance, encourage competition, increase labor market flexibility, and, more generally, reduce the cost of doing business,” she said.

“Public enterprise efficiency needs to be improved with measures that strengthen their finances and harden the budget constraints they face.”

In particular, Eskom will require bold action to redefine its business model so that it becomes self-sustained and ensures affordable and reliable electricity supply, said Coronel.

“Without fundamental reforms in Eskom’s finances and operations, continued budget transfers or assumption of its debt by the government will not resolve the company’s issues. Postponing the needed adjustment of the entity will only force greater difficulties down the road.”

“Acting decisively on tackling structural impediments to growth would help complement the authorities’ efforts to conduct sound macroeconomic policies, thus restoring policy certainty and boosting investor confidence.

“An improved business environment resulting from reform implementation would attract much-needed private investment, and, in turn, lead to a virtuous cycle of growth, job creation, and social inclusion.”

Read: Eskom CEO announces resignation

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Eskom is the one big problem Ramaphosa can’t solve by throwing money at it: IMF