IMF Urges S. Africa to Fight Graft as Post-1994 Gains Unwind
(Bloomberg) -- South African authorities should deepen the fight against corruption and change its labor and product markets as some of the nation’s post-apartheid achievements have “recently unwound” amid slow economic growth, the International Monetary Fund said.
IMF directors recommended “the forceful application of the Public Financial Management Act to increase deterrence against corruption,” the Washington-based lender said in a statement Monday. They called for the completion of pro-investment, job-creating measures in the telecommunications and mining industries, and said more progress is needed to contain fiscal risks from debt-laden state-owned companies.
IMF officials issued the statement after so-called Article IV consultations with local authorities.
Africa’s most-industrialized economy hasn’t grown at more than 2 percent since 2013. Bailouts for troubled state companies such as Eskom Holdings SOC Ltd. and South African Airways have raised risks that the National Treasury will breach its spending limits. Probes by the anti-graft ombudsman indicated that billions of rand was looted from state companies by businessmen and officials with close ties to former President Jacob Zuma. They all deny wrongdoing.
“The country has potential but the key challenge is to raise growth,” Montfort Mlachila, the lender’s senior resident representative in the country, said by phone. “Without increasing growth, you’re really just shuffling the chairs on the deck -- you need to expand the size of the pie.”
Per-capita economic growth has turned negative, the jobless rate is near a 15-year high of 26.7 percent, and income inequality is among the highest globally, the IMF said. Business confidence has slipped every month since reaching a more than two-year high in January as industries await real reforms under the tenure of new President Cyril Ramaphosa.
“Significant vulnerabilities arise from fiscal risks related to weak and poorly managed state-owned enterprises,” the IMF said. The state’s guarantees of Eskom’s outstanding securities total about 7 percent of gross domestic product, Treasury data show.
The lender maintained its forecast for economic growth this year at 1.5 percent and left the 2019 estimate at 1.7 percent.
The current-account deficit will probably expand to 2.9 percent of GDP this year and 3.3 percent in 2019, it said. In its February budget, the National Treasury forecast a gap of 2.3 percent for this year and 2.7 percent in the following 12 months. The deficit was 2.5 percent of GDP in 2017.
“External risks include large gross external financing needs, and a current-account deficit financed by flows that are prone to sudden reversals in response to abrupt changes in global financial conditions and sovereign credit ratings,” the IMF said.
The government is committed to reducing the deficit and stabilizing debt, the National Treasury said in an emailed statement after the release of the report.
©2018 Bloomberg L.P.