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Reform of South African public enterprises would help reassure investors – IMF

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Reform of South African public enterprises would help reassure investors – IMF

19th May 2017

By: Terence Creamer
Creamer Media Editor

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The International Monetary Fund (IMF) says “structural reforms” in product, service and labour markets should be South Africa’s immediate policy priority for stimulating growth and job creation, particularly in light of the limited room to galvanise growth through macroeconomic policies.

It also urged reforms of public enterprises both to reassure investors and citizens, as well as safeguard public finances and improve economic efficiency. “Such reforms should focus on stronger governance, enhanced transparency and imposition of penalties for failures to adhere to public procurement guidelines and quantification of public service obligations.”

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The recommendations follow the IMF’s 2017 Article IV consultation discussions with South Africa, which were undertaken between May 3 and 16.

The IMF team, led by Paolo Mauro, held meetings in Johannesburg, Pretoria and Durban with labour, business and government representatives, including Finance Minister Malusi Gigaba and South African Reserve Bank Governor Lesetja Kganyago.

Following the visit, the IMF raised its 2017 growth forecast for South Africa to 1%, from the 0.8% level forecast in its April World Economic Outlook. It attributed the modest upward revision to a “resumption of solid agricultural production as the drought abates, and an increase in mining output prompted by a moderate rebound in the prices of South Africa’s commodity exports”.

However, the pace of the recovery is unlikely to prevent a further increase in unemployment and a continued decline in per capita incomes.

“With limited room for stimulus through macroeconomic policies, the priority to stimulate economic growth and job creation rests with structural reforms, notably in product and service markets and in the labour market. The focus should be on sectors that provide crucial inputs for most firms in the economy, such as power generation, telecommunications, transportation, and financial services for small-and medium-sized enterprises.”

To address the “dual challenge” of reigniting growth and rendering it more inclusive early policy action was required to foster the entry of new firms in product and service markets, as well as to enhance flexibility in the labour market, the IMF said.

It also urged South Africa to ensure that its communication of its strategy was “clear and consistent”. “In this regard, staff welcomes the authorities’ recent reaffirmation of their Budget objectives as approved by Parliament. Implementation of the Budget and of an initial set of reforms will be necessary to improve confidence in the next few months.”

The IMF expected headline inflation to fall marginally below 6% in the second half of 2017 and in 2018. However, it said it would be “appropriate” for interest rates to remain on hold and for the central bank to stand ready to increase rates if inflation expectations were to rise.

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