IMF Staff Completes 2016 Article IV Mission to South Africa

By International Monetary Fund (IMF)

An International Monetary Fund mission team led by Ms. Laura Papi visited Pretoria, Johannesburg, and Cape Town from April 18 to May 4, to conduct the 2016 Article IV Consultation discussions with South Africa.

At the conclusion of the visit, Ms. Papi made the following statement:

“South Africa faces a challenging economic environment. The IMF projects 2016 growth at 0.6 percent, entailing falling per-capita income. A muted recovery is envisaged from 2017. Risks to this outlook are tilted to the downside and include further shocks from China, heightened global financial volatility, and sovereign debt credit rating downgrades. On the upside, the recent dialogue between government and social partners could catalyze reform implementation and invigorate growth.

“South Africa needs to create an environment that facilitates high and inclusive private sector-led growth that creates more jobs. The government and the South African Reserve Bank (SARB) have taken appropriate steps to counter rising government debt and inflation. Moving forward, structural reforms are imperative to reduce policy uncertainty, boost confidence, tackle structural impediments, and lower vulnerabilities.

“The government is making welcome progress on addressing infrastructure bottlenecks, especially in the electricity sector, has committed to state-owned enterprise (SOE) reform, and is strengthening public procurement. A comprehensive package of structural reforms remains the preferred option to create jobs and reduce inequality. An initial, focused set of tangible measures could help generate sustained reform momentum.

“The government's 2016 Budget targets are appropriately ambitious, but may be challenging to achieve if the IMF's macroeconomic projections materialize. Policies to maintain debt sustainability are essential to preserve investor confidence, but need to be carefully calibrated to avoid pressuring an already-weak economy. Strengthening governance, private participation in SOEs and greater spending efficiency are key interventions to improve SOE performance and service delivery. After the SARB's recent rate hikes, monetary policy may be able to remain on hold, though more tightening could be needed if inflation expectations and core inflation rise significantly.

“The government and the SARB are advancing key financial sector reforms, and stress tests carried out by the SARB suggest the banking sector remains resilient. Heightened monitoring of financial sector risks is warranted given the weak economy, tightening financial conditions, regulatory changes, and extensive linkages between macroeconomic and financial sector developments. The SARB could seize opportunities to build international reserves, especially in case of large, FDI-related foreign exchange inflows.”

The mission met with Finance Minister Pravin Gordhan, South African Reserve Bank Governor Lesetja Kganyago, Minister in the Presidency for Planning, Performance, Monitoring, Evaluation and Administration Jeff Radebe, Minister of Trade and Industry Rob Davies, Minister of Economic Development Ebrahim Patel, Commissioner of the South African Revenue Service Tom Moyane; senior officials of the National Treasury, South African Reserve Bank, and government departments ; the National Economic Development and Labor Council; senior leadership of the Congress of South African Trade Unions and the Federation of Unions in South Africa; and financial market and business representatives.