South Africa’s economic growth would most likely remain sluggish in 2020—below population growth for the sixth consecutive year, the International Monetary Fund said in a statement in Washington DC on Monday.
IMF said the medium-term growth outlook would remain “subdued” accompanied by “somewhat muted inflationary pressures”.
“With low growth and low job creation, the increasing labor force is projected to exacerbate unemployment pressures, poverty, and inequality,” said Ana Lucía Coronel, who led an IMF mission to South Africa from November 6 to November 21, 2019.
Coronel said amid weak economic performance, “credit expansion remains low, notwithstanding an uptick in unsecured loans”.
“External debt and gross financing needs remain elevated, while external financing continues to be heavily reliant on non-FDI inflows,” she said.
Coronel, however, added that the relatively easy global financing conditions are providing breathing space to finance government operations”.
Discussions in South Africa focused on the economic performance and outlook; policies to strengthen economic stability; and reforms to reinvigorate private investment, growth, and job creation.
South Africa’s undeniable economic potential remains largely untapped and the recent economic performance points to rising risks, IMF said, adding that the economy faces three immediate challenges: Persistently weak economic growth, Deteriorating fiscal and government debt and Major difficulties in the operations of state-owned enterprises (SOEs).
IMF said a more decisive approach to reform was urgently needed. Impediments to growth have to be removed, vulnerabilities addressed, and policy buffers rebuilt. It said expediting structural reform implementation was the only way to sustainably boost private investment and inclusion.
“The vulnerable outlook emphasizes the urgency of rebuilding policy buffers and implementing reforms to put the economy on a sustainable and inclusive growth path.
“Failure to implement the needed adjustment in government and SOE spending and efficiency will worsen debt dynamics, erode financial stability, and further raise the country risk premium.
“With delays in structural reforms, growth and social conditions will worsen. Implementing the reforms now will benefit from the benign financing conditions in international markets and prevent disruption from an abrupt adjustment in future,” Coronel, the IMF staff, said in her end of the mission statement.