Unemployment seems to be rising towards the 30% mark. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision on January 27. The IMF mission team thanks the South African authorities and all other interlocutors for the candid discussions and warm hospitality. Tax administration has been strengthened and spending on goods and services has been rationalized. University of Cape Town provides funding as a partner of The Conversation AFRICA. Renewed focus needs to be placed on reducing the cost of doing business. It will distract the government from the critical issues it needs to address which have little to do with the finances. https://t.co/ZaSgRuFaTP #IMFAfrica pic.twitter.com/VulX33c6V1. On current policies, the medium-term growth outlook would remain subdued accompanied by somewhat muted inflationary pressures. South Africa Looks Toward Inclusive Recovery to Stabilize Debt, Boost Growth In a conversation with IMF Country Focus , the Director-General of South Africa’s National Treasury Dondo Mogajane explains how the government has responded to the COVID-19 crisis, how IMF financing will help to stabilize the economy, and strategies for addressing debt and spurring growth. With low growth and low job creation, the increasing labor force is projected to exacerbate unemployment pressures, poverty, and inequality. The authorities are in the process of building support around a policy mix to boost growth, stabilize debt at lower levels, and increase the operational and financial efficiency of SOEs, particularly in the energy sector. It was as wide as 360 basis points from 2010 to 2012, when “Dubai Inc. was facing financial stress,” he said. And global credit rating agencies are uneasy about South Africa’s economic prospects. Implementing the reforms now will benefit from the benign financing conditions in international markets and prevent disruption from an abrupt adjustment in future. Labor market rigidities should be tackled by decentralizing wage bargaining to help align wages more closely with productivity and reducing workforce management restrictions to align hiring and other operational decisions with business needs. “Creditors will always try to claim the sovereign guarantee,” he said. Courtesy #DStv403. A vulnerable outlook IMF staff projects economic growth to remain sluggish in 2020—below population growth for the sixth consecutive year. The International Monetary Fund has approved South Africa's loan request of US$4.3 billion for COVID-19 emergency financial support. Efforts to strengthen criminal justice institutions, restore the integrity of key state entities, and empower the tax collection and prosecuting authorities are welcome and must be complemented with vigorous prosecution of those identified to have been involved in corrupt activities. By drawing the line around what Dubai considers its direct liabilities, the government is sending a message that it won’t be held responsible for other debt, said Nasser Saidi, who worked as chief economist of the Dubai International Financial Centre during the city’s debt crisis. However, in the prospectus for its $2 billion bond sale this month, Dubai put its debt at 123.5 billion dirhams, a figure that leaves out what’s owed by the emirate’s government-related entities, or GREs. Streamlining SOE operations and sharing existing infrastructure in electricity, telecoms, and transportation with private operators will reduce high input costs and improve competitiveness. South African Finance Minister Tito Mboweni in June predicted the economy would shrink 7.2 percent in 2020, its deepest slump in 90 years, and compared the ballooning public debt to a “hippopotamus... eating our children’s inheritance.”. This would arrest further debt build-up, and subsequently reduce debt to the levels of other investment-grade emerging economies. With delays in structural reforms, growth and social conditions will worsen. By contrast, rating companies have to adopt the view of an external investor, which means taking all liabilities into account. Media Statement - IMF Approves Funding for SA, Mozambique discovers fake virus test results sold at border, Harris blasts US COVID response as 'greatest failure' in presidential history, Trump hails COVID 'blessing' as he returns to Oval Office, Correctional Services describes Senekal protests as 'vigilantism', Some ANC members gather to support Magashule, CRL Commission to continue Kwasizabantu Mission investigation, COVID-positive Trump says 'no' to virtual debate, Gauteng Education MEC cracks down on illegal schools, Undocumented minors found during stop-and-search, SPONSORED: The Leadership Paradigm for the New Economy in a Conscious Society, Australia-New Zealand row overshadows Test rugby resumption, Pandemic could push millions into extreme poverty in 2020: World Bank. Debt dependency undermines a country’s sovereignty and integrity of domestic policy formulation. The debt burden could equal 77 percent of this year’s GDP, comparable with what the IMF predicts for South Africa. Having already tapped the UAE central bank for funds, the city then sought the help of its wealthier neighbor, Abu Dhabi, to avert a default by developer Nakheel PJSC. Governance and accountability arrangements should ensure that Eskom management is empowered to adopt sound technical decisions. Dubai may be as indebted as South Africa if dissenters are right. It would be politically naive and economically counterproductive for South Africa to give itself to the IMF. The IMF policy choices for developing countries, known as a structural adjustment programme, have been widely condemned. The pertinence of a range of regulatory requirements that unduly inflate production costs need to be reconsidered. And it would undermine the idea that the BRICS’ New Development Bank can offer an alternative to the Bretton Woods institutions. Over the past 23 years South Africa has stayed away from the IMF. This is linked to other factors like policy uncertainty, political instability within the ruling party and mismanagement of public resources mixed with corruption. Consistent with the MTBPS, IMF staff projections show a debt path that exceeds 70 percent of GDP after 2022 and does not stabilize. At the same time, IMF staff recommends timely implementation of the proposals contained in the discussion document on “Economic Transformation, Inclusive Growth, and Competitiveness” to improve the cost-effectiveness of network industries; foster firm competition; create conditions for growth in labor intensive sectors; and increase trade efficiency and competitiveness. However, substantive and coordinated reform implementation will be needed to lift South Africa from the low growth trap. Browse; Topics. In fact there are more reasons today for South Africa to maintain its position. The debt burden could equal 77% of this year’s gross domestic product, according to S&P, comparable with what the International Monetary Fund predicts for South Africa and just behind Oman. The IMF does not have a good historical record. 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What is less in dispute is that the uncertainty comes at a cost. “As investors, we certainly pay attention to what the rating companies think as we realize that other investors incorporate their views into their evaluations of the credit.”. Relative to other emerging markets, South Africa’s inflation volatility is affected mainly by inflation expectations and external prices, and less so by the output gap. IMF Members' Quotas and Voting Power, and Board of Governors, IMF Regional Office for Asia and the Pacific, IMF Capacity Development Office in Thailand (CDOT), IMF Regional Office in Central America, Panama, and the Dominican Republic, Financial Sector Assessment Program (FSAP), Currency Composition of Official Foreign Exchange Reserves. South Africa’s undeniable economic potential remains largely untapped and the recent economic performance points to rising risks. Sign up to receive free e-mail notices when new series and/or country items are posted on the IMF website.