IMF Staff Completes 2017 Article IV Visit to South Africa

IMF News, May 18, 2017

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South Africa’s rate of real GDP growth is projected at 1 percent in 2017.
Main factors underlying the pickup in economic activity in 2017:
- resumption of solid agricultural production as the drought abates
- increase in mining output prompted by a moderate rebound in the prices of South Africa’s commodity exports
The pace of recovery in 2017 and the next year is unlikely to prevent a further increase in unemployment and a continued decline in per capita incomes.

Headline inflation is expected to return below 6 percent in the second half of 2017 and in 2018.
Policy recommendation:
- In line with the inflation targeting framework, it would be appropriate for policy rates to remain on hold, and for the central bank to stand ready to increase rates if inflation expectations were to rise.

In view of the rising public debt ratio, fiscal policy is appropriately focused on maintaining medium-term debt sustainability.
Policy recommendations:
- A mild but steady reduction in the fiscal deficit would be advisable during the next few years to reduce the likelihood of a sizable increase in the cost of government borrowing.
- Reforms of public enterprises should focus on stronger governance, enhanced transparency, imposition of penalties for failures to adhere to public procurement guidelines, and quantification of public service obligations.
- Such reforms would reassure investors and the public at large, with associated benefits for public finances and economic efficiency.

With limited room for stimulus through macroeconomic policies, the priority to stimulate economic growth and job creation rests with structural reforms, notably in product and service markets and in the labor market.
Recommended early actions:
- Foster entry of new firms in product and service markets.
- Enhance flexibility in the labor market.
- Communicate clearly and consistently the strategy to be pursued.
Sectors to focus on that provide crucial inputs for most firms in the economy:
- power generation
- telecommunications
- transportation
- financial services for small-and medium-sized enterprises

An International Monetary Fund staff team led by Mr. Paolo Mauro visited Pretoria, Johannesburg, and Durban from May 3 to May 16, to conduct the 2017 Article IV consultation discussions with South Africa.
At the conclusion of the visit, Mr. Mauro made summary statements noting modest improvement in the pace of economic growth and reiterating policy priorities.
The team met with Finance Minister Malusi Gigaba; South African Reserve Bank Governor Lesetja Kganyago; senior officials of the National Treasury, South African Reserve Bank, and other government departments; the Congress of South African Trade Unions; and financial market and business representatives.

IMF Communications Department — Press Release No. 17/181 (May 18, 2017); statement of IMF staff team led by Mr. Paolo Mauro.