The International Monetary Fund (IMF) says South Africa will implement reforms to boost private sector investment, promote good governance and improve the efficiency of public spending to shore up an economy hit by rolling blackouts. He said it was necessary to implement this.
Africa's most industrialized economy will likely grow only 0.1% in 2023 due to severe power outages, known locally as load-shedding, and low commodity prices, the Washington-based lender said. He said this on Wednesday after a staff visit to South Africa. This compares with the January estimate of 1.2% and the Treasury forecast of 0.9%.
State-owned company Eskom Holdings cut power for more than 200 days last year and every day except one in 2023. The rolling blackouts, which began in 2008, were necessary to protect the company's aging power grid from collapse as much of the power went out. Coal-fired power plants cannot meet demand.
The Treasury said in a statement that it is aware of “most of the risks to economic growth” identified by financial institutions and is working on measures to address them. The IMF will provide more detailed analysis and recommendations when it releases its Article IV report on the country.
According to the IMF, reforms aimed at restoring energy security that attract private sector participation in electricity markets and address Eskom's operational and financial challenges will spur production growth and create jobs. It may be helpful to do so.
The R254-billion debt relief strategy announced by the Treasury for Eskom, if implemented, “should significantly improve the company's operations and establish its long-term viability,” the paper said. . Still, the plan, combined with continued support for other loss-making state-owned enterprises, spending on temporary welfare subsidies, and increased debt service costs, predicts the budget deficit will widen to 6.5% of gross domestic product by the end of the fiscal year. I warned you. It will get worse in March 2024 and into 2026.
Creating the conditions for higher economic growth and reducing South Africa's debt vulnerability requires reducing public sector wage claims and transfers to state-owned enterprises, while protecting targeted social spending and productive public investment. Stronger fiscal consolidation efforts are needed, including plans to reduce the IMF said.
“South Africa's public debt is among the highest in emerging economies and is expected to continue to rise with current policies,” the financier said. “This leaves limited fiscal space to address adverse impacts such as contingent liabilities from state-owned enterprises, social spending demands and climate change. It also exposes governments to increased borrowing costs and leaves them with limited resources. will be redirected to more productive capital and social spending.
The IMF also recommended that authorities work to expand the tax base, strengthen the fiscal framework by introducing a debt ceiling, address public procurement shortfalls, and improve public investment management. Last month, the Minister of Finance Enoch Godongwana It ruled out introducing a new fiscal anchor in the country's budget framework.