The International Monetary Fund (IMF) on Thursday said South Africa’s economic performance remains subdued, with weak private investment and productivity growth dampening economic activity to “levels insufficient to raise per-capita income and foster greater social inclusion”.
In a statement in Washington DC, the IMF said while the sophisticated services sector has been growing, most other sectors have been stagnant or contracting, adding that “South Africa thus remains an extremely unequal society, with high and rising unemployment (29 percent), particularly among the youth”.
South Africa’s economic assessment came after the IMF board concluded the Article IV consultation1 with South Africa on January 24, 2020.
According to the IMF, even though inflation is estimated to have moderated in 2019 to below the midpoint of the inflation target range, aided by one-off factors, “the current account deficit is relatively wide and largely financed by non-FDI inflows”.
There good news in the financial sector as banks are said to be sound, albeit with pockets of vulnerabilities.
IMF said “fiscal deficits have been persistently large due to continued high expenditure despite weakening revenue performance and state-owned enterprise (SOE) bailouts”.
“The government deficit is projected to reach 61⁄2 percent of GDP in FY19/20, resulting in significant debt accumulation— projected to exceed 60 percent of GDP in FY19/20—and leaving South Africa with no fiscal space.
“Weaknesses in public enterprises are resulting in poor service delivery and weighing on
the fiscus through bailouts or administrative interventions. An earlier monetary policy tightening was unwound in mid-2019 following inflation moderation, and the policy rate has remained unchanged since”.
IMF recognized policymakers have taken initial steps to advance reforms and streamline regulations with the purpose of reigniting growth and fostering greater social inclusion.