The International Monetary Fund’s (IMF) urgent call for South African reforms

Failure to implement rapid reforms to address the country’s pressing issues will leave South Africa in a sticky perplexity where economic growth will be unsustainable for years to come, the International Monetary Fund (IMF) cautioned in a recent public statement.

“The country’s cyclical recovery from the pandemic’s downturn is not enough to address soaring unemployment amid deteriorating confidence exacerbated by the civil unrest in July, anaemic private sector investment, and weak credit extension.”

Following its latest risk assessment on SA, the IMF now projects an economic growth rate of about 4.60% in 2021, which is much lower than the 5.10% forecasted by the National Treasury. It also depicted a more jaded medium-term outlook, with an estimated average growth rate of about 2% or less for the next decade and a half. 

The peripheral factors that have reinforced the country’s recovery from the pandemic-induced recession, including a global commodities boom and zephyr-like financial conditions, are assessed to be temporary and cannot sustain growth over the long term.

Along with a far-reaching health crisis, lethargic economic growth, high debt, unemployment and low investment, state-owned enterprises (SOEs) also remain the government’s problem child. These entities continue to experience deepening financial woes, mismanagement and poor balance sheets that seem to deteriorate with every passing financial year. 

The government urgently needs to ameliorate the structural rigidities that discourage private investment, economic growth and employment creation, by increasing the efficiency of the economy, the IMF added.

Therefore, the IMF has recommended the following reforms:

• Root out growth impediments.
• Increase economic efficiency.
• Increase labour market flexibility to create jobs and facilitate workforce management.
• Root out poor governance and corruption.
• Address the myriad of issues facing SOEs.
• Do away with regulatory barriers to private investment.

The necessity of withdrawing regulatory barriers to private investment was emphasised, with the IMF warning that “localisation and industrial policies... should not be used as a blunt instrument to serve protectionist views and vested interests, which could hinder industrial development and impair competitiveness”. 

Government should also endeavour to shift public debt towards a more sustainable path. “An ambitious fiscal consolidation is necessary to restore fiscal space and maximise the impact of structural reforms by welcoming private investment,” it said.

The National Treasury responded to the statement by acknowledging the risks and policy recommendations made by the IMF. It further noted that it has full confidence in the government’s commitment to do what is necessary to enhance overall growth, led by President Cyril Ramaphosa’s Economic Reconstruction and Recovery Plan.

We are of a similar view to the IMF in that addressing these structural reforms are of the utmost importance to ensure a long- term future for the country. South Africa must reform to grow.

Reforms must create more job opportunities and lure offshore investors back to our shores.