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.<\/p>\n
Severe power outages, known locally as load shedding, coupled with softer commodity prices mean Africa\u2019s most industrialized economy will probably only grow 0.1% in 2023, the IMF said Wednesday after a staff visit to South Africa.<\/p>\n
This compares with its January estimate of 1.2% and the National Treasury\u2019s projection of 0.9%.<\/p>\n
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\u2019s old and mostly coal-fired plants can\u2019t meet demand.<\/p>\n
The National Treasury is aware of \u201cmost of the risks to economic growth\u201d 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.<\/p>\n
Reforms aimed at restoring energy security that attracts private-sector participation in the electricity market and addresses Eskom\u2019s operational and financial challenges may help to bolster output growth and create jobs, said the IMF.<\/p>\n
If implemented, a R254 billion ($13.9 billion) debt-relief strategy the Treasury has announced for Eskom \u201cshould ensure material improvement in the company\u2019s operation and establish its long-term viability,\u201d it said.<\/p>\n
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.<\/p>\n
Creating the conditions for higher economic growth and a reduction in South Africa\u2019s 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.<\/p>\n
\u201cSouth Africa\u2019s public debt is among the highest in emerging markets and is set to continue rising on current policies,\u201d the lender said. \u201cThis 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.\u201d<\/p>\n
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\u2019s budget framework.<\/p>\n