IMF Executive Board Concludes 2017 Article IV Consultation with South Africa
IMF News, July 6, 2017
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- Published: July 6, 2017
Growth, inflation, and external outlook
- Growth projections: "growth is projected to increase to 1.0 percent in 2017 and 1.2 percent in 2018."
- Real GDP (annual percentage change): 2013: 1.7; 2014: 1.3; 2015: 0.3; 2016: 1.0; 2017 Est.: 1.2; 2018 Proj.: (table lists 1.2 for 2018).
- Real GDP per capita (annual percentage change): 2013: 0.9; 2014: 0.1; 2015: -0.3; 2016: -1.3; 2017: -0.6; 2018: -0.5.
- Current account: "current account deficit is projected to decline to 3 percent of GDP in 2017" and "to widen to just below 4 percent of GDP in the medium term."
- Current account balance (billions of U.S. dollars): 2013: -21.6; 2014: -18.7; 2015: -14.0; 2016: -9.6; 2017: -11.1.
- Current account (percent of GDP): 2013: -5.9; 2014: -5.3; 2015: -4.4; 2016: -3.0; 2017: -3.4.
- CPI: "Consumer price inflation recently returned below 6 percent" and "is projected to remain marginally below the upper threshold of the 3-6 percent target band for the remainder of 2017 and in 2018."
- CPI (annual average): 2013: 4.6; 2014: 6.3; 2015: 5.6; 2016: (table provides CPI end-period 2016: 5.5; CPI annual avg 2016: 5.7 in GDP deflator row—preserve table entries as presented).
Vulnerabilities and risks
- Low growth has increased government debt and amplified vulnerabilities: "South Africa’s vulnerabilities have become more pronounced and are set to increase further unless economic growth revives."
- Contingent liabilities: "The public sector’s balance sheet is also exposed to sizable contingent liabilities from state-owned enterprises (SOEs)."
- Confidence and financing risks: "Perceptions of weakening governance and uncertainties regarding the direction of future economic policies... have adversely affected consumer and investor confidence."
- External financing structure and risks: "Large gross external financing needs, financed mainly by portfolio flows, expose South Africa to significant financing risks."
- Exchange rate and debt composition: resilience supported by "a freely floating exchange rate, corporate resilience to sizable exchange rate depreciation during the past few years, and high share of domestic-currency-denominated government debt."
- Risk amplification channels: "implications could in turn be amplified by linkages among the real, financial, and fiscal sectors, especially if accompanied by further downgrades of local currency sovereign credit ratings to below investment grade."
Fiscal and monetary stance
- Monetary policy: "The South African Reserve Bank (SARB) tightened the repo rate in stages by 75 bps in early-2016 to 7.0 percent and has kept it at that level since then."
- Fiscal outturns and plans:
- "The headline fiscal deficit was reduced to 3.9 percent of GDP in FY2016/17 from 4.5 percent the previous fiscal year."
- "The budget for FY2017/18 envisages a further moderate tightening."
- Fiscal table highlights (percent of GDP unless otherwise indicated):
- Revenue, including grants: 2013: 27.3; 2014: 27.6; 2015: 28.3; 2016: 28.9; 2017: 29.1; 2018: 29.4.
- Expenditure and net lending: 2013: 31.6; 2014: 31.8; 2015: 32.9; 2016: 33.2; 2017: 33.4.
- Overall balance: 2013: -4.3; 2014: -4.2; 2015: -4.6; 2016: -4.0; 2017: -4.1.
- Gross government debt (central government): 2013: 44.1; 2014: 47.0; 2015: 49.3; 2016: 51.7; 2017: 52.6; 2018: 54.7.
Executive Board assessment and policy recommendations
- Monetary policy: "scope for monetary or fiscal policy to provide stimulus is limited." With inflation projected marginally below the upper threshold, "keeping policy rates on hold is appropriate."
- Fiscal policy priorities:
- "Prudent fiscal policy aimed at maintaining debt sustainability while prioritizing pro‑growth and pro‑poor spending."
- Strengthen budget execution and implement revenue and fiscal reform measures to ensure "that government debt stabilizes significantly below 60 percent of GDP."
- Monitor and manage fiscal risks from explicit or implicit government guarantees.
- Emphasize reform of state‑owned enterprises.
- Structural reforms to lift growth and employment:
- "Accelerate the pace of reforms in product, service, and labor markets to spur economic growth and job creation, especially for young people."
- Focus reforms on "power generation, telecommunications, transportation, and financial services for SMEs."
- Improve educational attainment and skills; make wage determination "more responsive to firm‑specific circumstances, including productivity."
- Monitor the employment impact of the "recently‑agreed national minimum wage" and be ready to introduce complementary measures to support young workers and SMEs.
- Promote better labor relations, including "implementation of a code of good practice in collective bargaining."
- "Strengthening governance and fighting corruption will also be critical."
- Financial sector resilience and inclusion:
- Complete ongoing reforms to adapt prudential regulation to international best practice and enhance the resolution framework.
- Complement prudential reforms with "greater competition in the banking system."
- Robust implementation of the Financial Intelligence Center Amendment Act to "strengthen the integrity of the financial system."
- "Greater access to finance, combined with proper supervision, would help reduce inequality."
- Resilience-building: Directors noted South Africa’s resilience due to "its flexible exchange rate, low reliance on foreign currency debt, large domestic investor base, and broadly balanced international investment position," and encouraged attracting "more durable foreign investment and increasing international reserves."
Key social and economic indicators (selected)
- Nominal GDP (2016, billions of US dollars): 295
- GDP per capita (2016, in US dollars): 5272
- Population total (2016, million): 55.9
- Urban population (percent of total), 2014: 64
- Life expectancy at birth (years), 2016: 62
- Headcount ratio at $1.90 a day (2011 PPP) (percent of population): 16.6
- Undernourishment (2015): 5.0
- Gini coefficient (2010): 63.4
- Income shares: Highest 10 percent of population: 51.3; Lowest 20 percent of population: 2.5
- Unemployment rate (percent of labor force, annual average): 2013: 24.7; 2014: 25.1; 2015: 25.4; 2016: 26.7; 2017: 27.4; 2018: 28.0
- Government bond yield (10-year, percent) (average of January-May 2017 data): 2013: 8.2; 2014: 8.0; 2015: 9.7; 2016: 8.9; 2017: 8.7
- Gross reserves (billions of U.S. dollars): 2013: 49.6; 2014: 49.1; 2015: 45.8; 2016: 47.4
- Total external debt (percent of GDP unless otherwise indicated): 2013: 37.2; 2014: 41.3; 2015: 39.1; 2016: 48.5; 2017: 45.2; 2018: 46.2
- Nominal effective exchange rate (percentage change, period average) (January-May 2017 vs 2016 average): 2013: -14.4; 2014: -10.3; 2015: -5.6; 2016: -11.0; 2017: 12.7
Press Release No. 17/263 — IMF Communications Department, July 6, 2017