The International Monetary Fund (IMF) says South Africa faces lacklustre growth in the medium-term, despite a faster-than-anticipated recovery from the Covid-19 pandemic.<\/p>\n
In a statement issued at the end of discussions with South Africa on Friday (11 February), the group forecast that growth rebounded to 4.6% in 2021, after contracting 6.4% in 2020.<\/p>\n
“The rapid pace of recovery, despite the earlier surge in infections amid low vaccination rates and international travel bans brought by the Omicron variant, could be a source of optimism.<\/p>\n
“However, the economic recovery is deemed fragile, as it was accompanied by worsening unemployment (34.9%), weak bank lending to the private sector, and anaemic private investment. Despite the growth rebound, poverty and inequality did not show signs of improvement.”<\/p>\n
Against this backdrop, macroeconomic fundamentals have weakened, and vulnerabilities have increased, it said.<\/p>\n
“The fiscal position deteriorated following the introduction of Covid-19-related measures and the transfers to state-owned enterprises (SOEs), whose operational and financial performance deteriorated further.<\/p>\n
“As a result, the fiscal deficit soared to 9.7% of GDP in 2020, before declining to an estimated 8.4% in 2021. Public debt is estimated to have reached almost 70% of GDP in 2021.”<\/p>\n
The IMF said South Africa’s outlook now points to some growth recovery in the near term but a lacklustre medium-term performance.<\/p>\n
Growth is projected at 1.9% in 2022, before easing to 1.4% in the medium term, capped by structural constraints to investment, prevailing policy uncertainty, and elevated public debt, which hinders job creation<\/p>\n
While the fiscal deficit is projected to continue to narrow on recovering revenue and phasing out of Covid-19-related measures, over the medium term, the growing interest bill and demands from SOEs and public servants will keep the fiscal deficit high, above 7% of GDP.<\/p>\n
Long-term issues, including deteriorating state-owned enterprises and inconsistent electricity supply, were also flagged by visiting the groups’ directors.<\/p>\n
“The anaemic growth over the past decade was driven by a significant drop in the contributions of total factor productivity and private investment, partly reflecting the deteriorating allocative efficiency of resources.<\/p>\n
“The pandemic has further exacerbated this situation by hampering human and physical capital accumulation, two crucial elements that typically support productivity growth. Therefore, a credible commitment to reform and a multipronged set of coherent actions that address these issues are needed.”<\/p>\n