South Africa wants main fiscal efforts to stabilize debt, the IMF says

A volunteer sprays disinfectant during a thorough clean at a clinic in the Alexandra community in Johannesburg.

Photographer: Guillem Sartorio / Bloomberg

Photographer: Guillem Sartorio / Bloomberg

South Africa requires growth-friendly yet substantial fiscal efforts to stabilize and reduce its debt burden, lower countries’ risk premiums and improve investor confidence, according to the International Monetary Fund.

The Covid-19 pandemic exacerbated existing vulnerabilities in South Africa, meaning that “addressing longstanding fiscal and structural challenges is more important than ever to create the conditions for a robust recovery and strong, sustainable and inclusive growth” the Washington-based lender said Wednesday in a statement posted on its website following a virtual employee visit.

The South African economy contracted last year, probably the hardest in nine decades, to contain the spread of the virus and weigh on production. Even before the virus restrictions, the country was in the longest down cycle since World War II. Power outages and bailouts for loss-making state-owned companies contributed to a rapid deterioration in public finances.

The IMF lowered its forecast for economic growth in South Africa in 2021 from 3% to 2.8% on Tuesday and sees an expansion of only 1.4% for the next year. The country took out a $ 4.3 billion loan from the lender in 2020, the first the organization received at a sovereign level.

Read more: The South African economy faces a decade of growth below 3%: Chart

The National Treasury announced in October that it plans to cut spending by about 300 billion rand ($ 19.7 billion) over the next three fiscal years as it targets a primary budget surplus in 2026, when debt is expected Will reach 95.3% of the gross domestic product. However, Finance Minister Tito Mboweni’s efforts to cut a government payroll, which has risen by 51% since 2008, met with a backlash from politically influential working groups.

Performance goals

“To reduce large budget deficits and debts, wage costs must be contained and targeted subsidies and transfers to inefficient state-owned companies must be avoided,” said the IMF. As virus spending subsides as the pandemic subsides, the government should also make transfers to state-owned companies conditional on meeting “ambitious but realistic performance targets,” it said.

Particular attention should also be paid to improving the efficiency of state-owned companies and the quality of their services in order to tighten their finances and forge well-defined strategic equity partnerships, especially in the energy sector, the lender said.

The National Treasury Department said in a statement that the country remains committed to reducing its budget deficit, stabilizing debt over the next five years and putting public finances back in a sustainable position.

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