{
  "title": "IMF Executive Board Concludes 2018 Article IV Consultation with South Africa",
  "publication": "IMF News, July 30, 2018",
  "sourceUrl": "https://www.imf.org/en/news/articles/2018/07/27/pr18319-south-africa-imf-executive-board-concludes-2018-article-iv-consultation",
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  "summary": "Amid a marked growth deceleration, some of South Africa’s economic and social achievements after the end of apartheid have recently unwound.",
  "publishDate": "2018-07-30",
  "sections": [
    {
      "heading": "Recent economic developments and structural context",
      "content": "- Amid a marked growth deceleration, some of South Africa’s economic and social achievements after the end of apartheid have recently unwound.\n- Economy characteristics:\n  - Globally positioned, sophisticated, and diversified, but gaps in physical infrastructure and education create large productivity differentials across sectors.\n  - Low consumer and business confidence has dampened productivity growth.\n- Social and labor outcomes:\n  - Per-capita growth has turned negative.\n  - Poverty rate stands at around 40 percent.\n  - Unemployment has crept up to 27 percent—almost twice that level for the youth.\n  - Income inequality is one of the highest globally.\n- Recent policy stance and outcomes:\n  - FY17/18 consolidated fiscal deficit is estimated to have expanded to 4.8 percent of GDP from 4 percent of GDP in FY16/17.\n  - Monetary policy was eased by a total of 50 basis points, in July 2017 and March 2018.\n  - GDP growth edged up only slightly from 0.6 percent in 2016 to 1.3 percent in 2017.\n  - Inflation moderated to 5.3 percent in 2017.\n  - Current account deficit narrowed to 2.5 percent of GDP in 2017.\n- Major obstacles to growth identified:\n  - Regulatory environment not conducive to private investment.\n  - Inefficiencies in state-owned enterprises (SOEs) increasing the cost of key inputs.\n  - Labor market rigidities and insufficient competition in product markets.\n  - Corruption and policy uncertainty."
    },
    {
      "heading": "Macroeconomic outlook and baseline projections",
      "content": "- Staff baseline projections on current policies:\n  - Real GDP growth: 1.5 percent in 2018 and 1.8 percent in the outer years.\n  - Growth slightly above population growth.\n  - Inflation: 4.9 percent in 2018 and edge higher to 5.5 percent in the outer years.\n  - Current account deficit: expected to widen to 2.9 percent of GDP in 2018 and to around 3½ percent of GDP over the medium term.\n- Upside potential and constraints:\n  - Upside: addressing structural bottlenecks could boost growth significantly, aided by deep and liquid financial markets, a solid domestic investor base, a floating exchange rate, and limited susceptibility to exchange rate and rollover risk.\n  - Constraints: fast growing debt has constrained policy space."
    },
    {
      "heading": "Risks and vulnerabilities",
      "content": "- Downside risks judged more prominent than upside in the near term.\n- Fiscal and public sector risks:\n  - Significant vulnerabilities from fiscal risks related to weak and poorly managed state-owned enterprises and other spending pressures.\n- External and financial risks:\n  - Large gross external financing needs.\n  - Current account deficit financed by flows prone to sudden reversals in response to abrupt changes in global financial conditions and sovereign credit ratings.\n  - Disruption in trade flows and a fall in commodity prices would worsen the twin deficits and dampen growth.\n- Financial sector resilience:\n  - South Africa showed resilience to recent market volatility, supported mainly by the floating exchange rate.\n  - Pockets of vulnerabilities in small and medium-sized banks warrant continued vigilance."
    },
    {
      "heading": "Executive Board Assessment — findings and policy recommendations",
      "content": "- General assessment:\n  - Directors acknowledged important progress since the end of apartheid, supported by strong economic institutions, but noted that unemployment and inequality remain high.\n  - Welcomed measures announced by the new administration to improve governance and reignite business and consumer confidence.\n  - Encouraged leveraging the recent political transition to advance the reform agenda in a well-sequenced manner.\n- Governance and anti-corruption:\n  - Urged authorities to deepen the fight against corruption.\n  - Recommended forceful application of the Public Financial Management Act to increase deterrence against corruption.\n- Structural reforms to boost productivity and investment:\n  - Advance ambitious reforms in product and labor markets to raise productivity and enhance private sector participation.\n  - Complete measures in the telecommunications and mining sectors to attract higher private investment and create employment.\n  - Rethink SOE business models, including by engaging in strategic equity partnerships with the private sector, to contain fiscal risks.\n- Fiscal policy stance:\n  - Fiscal policy needs to focus on containing the rise in public debt and building buffers against potential shocks.\n  - Recommended actions include reducing the high wage bill, improving the quality of expenditure, and strengthening tax administration.\n  - Some Directors noted that the primary expenditure ceiling could usefully be accompanied by a debt ceiling.\n- Monetary and reserve policy:\n  - Commended the South African Reserve Bank’s effective inflation targeting and its intention to lower inflation toward the midpoint of the official target band.\n  - Monetary policy should remain cautious, paying attention to fiscal policy and upside inflation risks.\n  - Advised opportunistically increasing international reserves to enhance resilience.\n- Financial sector oversight and inclusion:\n  - Welcomed the introduction of the Twin Peaks approach to strengthen financial sector oversight and cross-agency coordination.\n  - Took positive note of the banking system remaining sound but stressed continued vigilance.\n  - Recommended continuing to upgrade stress-testing capabilities and efforts to enhance financial inclusion, including promoting entry of new financial institutions and technological solutions to increase competition."
    },
    {
      "heading": "Selected economic indicators and key statistics (2014–19, as presented)",
      "content": "- Social and population indicators:\n  - Nominal GDP (2016, billions of US dollars): 295\n  - GDP per capita (2016, in US dollars): 5,311\n  - Total population (2016, million): 55.6\n  - Urban population (2014, percent of total): 64\n  - Life expectancy at birth (2016, number of years): 62\n  - Headcount ratio at $1.90 a day (2011 PPP): 16.6\n  - Undernourishment (2015): 5.0\n  - Gini coefficient (2010): 63.4\n  - Income shares: Highest 10 percent of population: 51.3; Lowest 20 percent of population: 2.5\n- Economic performance (selected annual figures):\n  - Real GDP: 2014: 1.8; 2015: 1.3; 2016: 0.6; 2017: 1.5; 2018 (Est.): 1.7; 2019 (Proj.): [value listed as blank in source]\n  - Real GDP per Capita: 0.3; -0.3; -1.0; -0.1; 0.1 (years corresponding to 2014–2018)\n  - CPI (annual average): 2014: 6.1; 2015: 4.6; 2016: 6.3; 2017: [not listed in table average but elsewhere cited as 5.3]\n  - Unemployment Rate (percent of labor force, annual average): 25.1; 25.4; 26.7; 27.5; 27.9; 28.3 (2014–2019 sequence)\n- Savings, investment, and fiscal metrics:\n  - Gross national saving (percent of GDP): 15.4; 16.4; 16.1; 15.6; [2018–19 values listed in table as 15.1 and 14.8]\n  - Investment (including inventories, percent of GDP): 20.5; 21.0; 19.4; 18.6; 18.5; 18.7\n  - Revenue, including grants (percent of GDP): 27.6; 28.1; 28.6; 29.0; 29.5; [2019 value listed as blank]\n  - Expenditure and net lending (percent of GDP): 31.9; 32.9; 32.7; 33.3; 33.6\n  - Overall balance (percent of GDP): -4.3; -4.8; -4.1; -4.6; -4.0\n  - Primary balance (percent of GDP): -1.2; -1.5; -0.6; -0.5; 0.0\n  - Structural balance (percent of potential GDP): -3.8; -3.9; -3.7; -3.5\n  - Gross government debt (percent of GDP): 47.0; 49.3; 51.6; 53.0; 55.0; 56.0\n  - Government bond yield (10-year, percent): 8.0; 9.7; 8.9; 9.2; 8.6\n- External sector and reserves:\n  - Current account balance (billions of U.S. dollars): -17.8; -14.6; -8.2; -8.6; -11.0; -12.7\n  - Current account balance (percent of GDP): -5.1; -2.8; -2.5; -2.9; -3.3\n  - Gross reserves (billions of U.S. dollars): 49.1; 45.8; 47.4; 50.7; 51.5\n  - Total external debt (percent of GDP): 41.3; 39.1; 48.3; 49.6; 46.1\n  - Nominal effective exchange rate (period average): -10.2; -11.9; -7.1; 12.7 (years and context as in source)\n  - Exchange rate (Rand/U.S. dollar, end-period): 11.6; 13.7 (dates as in source)\n- Sources for indicators: South African Reserve Bank, National Treasury, Haver, Bloomberg, L.P., World Bank, and Fund staff estimates and projections.\n\nIMF Press Release No. 18/319 — July 30, 2018\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- South Africa and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2018/07/27/pr18319-south-africa-imf-executive-board-concludes-2018-article-iv-consultation"
    }
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    "Published: July 30, 2018",
    "Amid a marked growth deceleration, some of South Africa’s economic and social achievements after the end of apartheid have recently unwound.",
    "Economy characteristics:",
    "Social and labor outcomes:",
    "Recent policy stance and outcomes:",
    "Major obstacles to growth identified:",
    "Staff baseline projections on current policies:",
    "Upside potential and constraints:",
    "Downside risks judged more prominent than upside in the near term.",
    "Fiscal and public sector risks:",
    "External and financial risks:",
    "Financial sector resilience:",
    "General assessment:",
    "Governance and anti-corruption:",
    "Structural reforms to boost productivity and investment:",
    "Fiscal policy stance:",
    "Monetary and reserve policy:",
    "Financial sector oversight and inclusion:",
    "Social and population indicators:",
    "Economic performance (selected annual figures):",
    "Savings, investment, and fiscal metrics:",
    "External sector and reserves:",
    "Sources for indicators: South African Reserve Bank, National Treasury, Haver, Bloomberg, L.P., World Bank, and Fund staff estimates and projections.",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[South Africa and the IMF](http://www.imf.org/external/country/ZAF/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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