IMF Executive Board Concludes 2019 Article IV Consultation with South Africa
IMF News, January 30, 2020
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- Published: January 30, 2020
Overview and context
- Executive Board concluded the Article IV consultation on January 24, 2020.
- South Africa faces structural impediments to growth; economic performance remains subdued and risks are materializing.
- High and rising unemployment: "29 percent" (headline mention); detailed series shows unemployment rate (annual average) at 25.1, 25.4, 26.7, 27.5, 27.1, 28.6, 29.8, 30.7 for 2014–2021 (with 2020 and 2021 projections).
- Inflation estimated to have moderated in 2019 to an estimated "4.2 percent" and below the midpoint of the inflation target range, aided by one-off factors.
- Current account deficit is relatively wide and largely financed by non-FDI inflows.
- Banks are sound with pockets of vulnerabilities.
Economic performance and IMF staff outlook
- Weak private investment and productivity growth have dampened activity; services have grown while most other sectors are stagnant or contracting.
- Staff growth projection on current policies:
- Real GDP: estimated "0.4 percent" in 2019, projected "0.8 percent" in 2020 and "1.5 percent" in the outer years.
- Inflation projection:
- Estimated "4.2 percent" in 2019; projected to rebound in 2020 before easing to slightly below "5 percent" in the medium term.
- Current account outlook:
- Expected to widen to around "4 percent of GDP" over the medium term.
- Risks to the outlook derive from further delays in adjustment and reform or changes in investors’ appetite for emerging markets.
Fiscal position, public debt, and SOE vulnerabilities
- Persistent large fiscal deficits due to continued high expenditure, weakening revenue performance, and state-owned enterprise (SOE) bailouts.
- Government deficit projected to reach "6½ percent of GDP" in FY19/20.
- Debt accumulation projected to exceed "60 percent of GDP" in FY19/20, leaving South Africa with no fiscal space.
- MTBPS (October) proposed savings from rationalization of spending in goods and services to partially offset large bailouts to Eskom, but projects increasing government debt that does not stabilize.
- Directors’ fiscal guidance:
- Implement strong fiscal consolidation and SOE reforms to ensure debt sustainability.
- Focus on maintaining medium term debt sustainability through growth-friendly and expenditure-based fiscal consolidation.
- Suggested measures: reductions in the public wage bill; reduce fiscal contingencies from SOEs; improve tax administration and compliance.
- Protect priority pro-poor social spending; make education and health spending more efficient.
- Support for introducing a debt anchor to the fiscal framework and institutionalizing periodic spending reviews.
- SOE-specific guidance:
- Concern over risks from SOEs, especially Eskom.
- Budget support to SOEs should be conditioned on well-defined governance and operational and financial performance targets.
- Tackling Eskom challenges expected to reduce fiscal deficits and debt, boost business confidence, encourage private investment (including in green energy), improve macroeconomic policy credibility, and signal commitment to addressing state capture legacies.
Monetary policy and financial sector
- Monetary policy:
- Earlier tightening was unwound in mid-2019 following inflation moderation; policy rate has remained unchanged since.
- Directors commended the monetary framework: credible inflation targeting regime, flexible exchange rate system, and highly developed financial system.
- Directors noted monetary policy has limited potency to boost growth given structural impediments and called for close coordination between monetary and fiscal policies.
- In SARB reform discussions, Directors indicated SARB’s independence and inflation mandate should be preserved.
- Financial sector resilience and supervision:
- Directors welcomed resilience of the financial sector but urged continued vigilance given pickup in unsecured lending.
- Encouraged SARB to use forthcoming FSAP to further strengthen supervisory and regulatory framework.
- Welcomed entry of new players and technological innovations to promote financial inclusion.
Structural reform and governance recommendations
- Directors encouraged steadfast implementation of structural reforms to harness economic potential and foster social inclusion.
- Priorities highlighted:
- Product and labor market reforms, including greater competition and private participation in network industries.
- Improve the business climate and human capital to promote job creation, particularly for youth.
- Accelerate reforms to strengthen governance and fight corruption, including enhancing the AML/CFT framework.
Selected key statistics and indicators (as presented)
- Social and baseline figures:
- Nominal GDP (2018, billions of US dollars): "368"
- GDP per capita (2018, in US dollars): "6,354"
- Total population (2018, million): "58"
- Urban population (2017, percent of total): "66"
- Life expectancy at birth (2017, number of years): "63"
- Lower national poverty line (2015, percent of population): "40"
- Undernourishment (2016): "6"
- Gini coefficient (2015): (value reported as heading "Inequality" with income shares) Highest 10 percent of population: "51"; Lowest 20 percent of population: "3"
- Growth and prices (selected annual changes and levels):
- Real GDP (2014–2019): 1.8, 1.2, 0.4, 1.4, 0.8, 1.0
- Real GDP per capita (2014–2019): 0.3, -0.3, -1.1, -0.1, -0.7, -0.5
- GDP deflator (2014–2019): 5.5, 5.2, 7.2, 5.3, 3.9, 4.2
- CPI (annual average): 6.1, 4.6, 6.3 (years not explicitly aligned in source block)
- CPI (end of period): 6.7, 4.7, 4.9, 4.0 (years not explicitly aligned)
- Labor market:
- Unemployment rate (percent of labor force, annual average) 2014–2021: 25.1, 25.4, 26.7, 27.5, 27.1, 28.6, 29.8, 30.7
- Unit labor costs (formal nonagricultural): 5.4, 5.1
- Savings and investment (percent of GDP):
- Gross national saving 2014–2018: 15.4, 16.3, 14.4, 14.2, 13.8
- Public (incl. public enterprises): 1.3, 0.0
- Private: 14.3, 14.9, 13.3, 13.9, 13.5, 13.0, 12.5, 12.0, 11.9, 11.7
- Investment (including inventories) 2014–2019 and beyond: 20.5, 20.9, 19.2, 18.8, 17.9, 17.6, 17.5
- Fiscal position (percent of GDP, selected):
- Revenue, including grants: 27.6, 28.2, 28.3, 29.1
- Expenditure and net lending: 31.9, 32.9, 32.7, 32.6, 33.4, 35.2, 35.9, 36.0
- Overall balance: -4.3, -4.8, -4.1, -4.4, -6.1, -6.7, -6.8
- Primary balance: -1.2, -1.5, -0.6, -0.8, -2.1, -2.4, -2.2
- Structural balance (percent of potential GDP): -4.2, -3.8, -3.6, -4.6, -4.9, -5.2
- Gross government debt (central government): 47.0, 49.3, 51.5, 53.0, 56.7, 60.8, 65.3, 69.6
- Government bond yield (10-year and over, percent): 8.0, 9.7, 8.9, 9.2, 9.4, 9.0
- Money, credit, and interest rates:
- Broad money: 10.5, 6.4, 5.6
- Credit to the private sector: 4.3, 3.1, 3.7
- Repo rate (percent, end-period): 5.8, 7.0, 6.8, 6.5
- External sector and balance of payments:
- Current account balance (billions of U.S. dollars) 2014–2021: -17.8, -14.7, -8.5, -8.9, -13.1, -11.9, -13.4, -14.1
- Current account (percent of GDP): -5.1, -2.9, -2.5, -3.5, -3.3, -3.7
- Exports growth (volume): 3.6, 2.9, 2.6, 3.4, 3.2
- Imports growth (volume): -3.9, 3.3, 1.5
- Terms of trade: 2.8, 1.7, 4.5, -2.6
- Overall balance (percent of GDP): 0.2, 0.6
- Gross reserves (billions of U.S. dollars): 49.1, 45.8, 47.4, 50.7, 51.6, 53.8, 51.7
- Total external debt (percent of GDP): 41.3, 39.1, 48.2, 49.6, 46.8, 51.1, 51.0, 51.2
- Nominal effective exchange rate (period average): -9.6, -10.4, 9.8
- Real effective exchange rate (period average): -6.3, 12.7, -1.8
- Exchange rate (Rand/U.S. dollar, end-period): 11.6, 15.6, 13.7, 12.3, 14.0
IMF Press Release No. 20/23 — IMF Executive Board Concludes 2019 Article IV Consultation with South Africa
