IMF Executive Board Concludes 2024 Article IV Consultation with South Africa
Washington, DC, US (PANA) - South Africa’s economy has continued to face challenges in recent years, the International Monetary Fund (IMF) has said.
This is contained in a press release after the Executive Board of the IMF) concluded the 2024 Article IV consultation with South Africa.
The press release noted that power shortages and disruptions to rail and port operations constrained growth to 0.7 per cent in 2023.
“Activity remained subdued in 2024, given election-related uncertainty in the first half of the year and severe droughts,” it said.
"Nonetheless, it added, power generation was stabilized and, following the formation of a reform-oriented Government of National Unity in June, consumer, business, and investor confidence rebounded.
Inflation moderated from 5.9 per cent in 2023 to an estimated 4.5 per cent in 2024, with the central bank cutting interest rates by 50 basis points in 2024.
“While still high, unemployment declined to an 32.8 per cent in 2024. Government deficits remained elevated, pushing public debt to above 75 per cent of GDP by end-2024,” the press release said.
Looking ahead, real GDP growth is projected to accelerate to 1.5 per cent in 2025, driven by recovering private consumption and investment supported by stable electricity generation.
Over the medium term, annual growth is expected to reach 1.8 per cent, as investment improves gradually on the back of ongoing reform efforts to address electricity and logistics bottlenecks.
Inflation is projected to average 4 per cent in 2025 and stabilize at the midpoint of the South African Reserve Bank (SARB) target range (4.5 per cent) in the medium run. With fiscal deficits projected to stay elevated over the medium term, public debt is expected to continue to rise.
The press release said the outlook “remains marked by high uncertainty, with the balance of risks tilted to the downside".
Key downside external risks relate to a further deepening of geo-economic fragmentation and intensification of protectionist policies, an escalation of ongoing conflicts, a deeper slowdown in main trading partners, or slower global disinflation and tightening financial conditions.
Domestically, resistance to and delays in the implementation of needed reforms could add to downside risks.
On the upside, faster and more ambitious reform implementation by the new government, or stronger global growth, could boost confidence and growth.
The press release said directors agreed with the thrust of the staff appraisal. They welcomed South Africa’s new Government of National Unity and its commitment to reforms aimed at addressing long‑standing challenges.
“While there are signs of recovery, economic activity remains subdued amid heightened global uncertainty and longstanding structural impediments. Against this background, directors emphasized the importance of prudent macroeconomic policies complemented by ambitious structural reforms to support macroeconomic stability and place the economy on a path toward higher, more inclusive, and greener growth.”
The press release said directors welcomed the authorities’ commitment to fiscal prudence, including plans to reduce the fiscal deficit and stabilize debt.
Given increased risks, most directors called for more ambitious fiscal consolidation efforts to lower debt to more prudent levels and rebuild fiscal buffers, although a few felt that the authorities’ preferred approach may be more appropriate given political economy considerations.
Directors considered that an evenly paced fiscal consolidation focused on cutting inefficient spending while protecting priority social and infrastructure spending, and continuing to strengthen tax administration, can support debt sustainability while minimizing the negative impact on the economy.
Most directors agreed that introducing a prudent debt anchor supported by a fiscal rule could help underpin the adjustment and bolster credibility, although a few directors felt that a debt ceiling could constrain flexibility. Enhancing fiscal transparency and risk management can further support the resilience of public finances.
-0- PANA MA/RA 2Feb2025
