By Lehlohonolo Lehana.
The International Monetary Fund (IMF) has slashed its growth forecast for South Africa to just 0.1% for 2023 and has warned that the country risks economic stagnation if it does not act urgently to step up the pace of its economic reforms.
Severe power outages,coupled with softer commodity prices mean Africa’s most industrialized economy will probably only grow 0.1% in 2023, the Washington-based lender said Wednesday after a staff visit to South Africa. That compares with its January estimate of 1.2% and the National Treasury’s projection of 0.9%.
The assessment was performed for the IMF’s annual review of the country.
In a statement following the review, the IMF said: South Africa’s economic and social challenges are mounting, risking stagnation amid an unprecedented energy crisis, increasingly binding infrastructure and logistics bottlenecks, a less favourable external environment, and climate shocks. A recovery in the services sector supported job creation in 2022; however, employment remains below pre-pandemic levels, and unemployment is close to record highs on the back of already high poverty and inequality.
In addition to SA’s structural constraints, the IMF warned that “the economy remains exposed to external shocks and capital flow volatility, in the context of tighter global financial conditions, and volatile commodity prices related to Russia’s war in Ukraine”.
The IMF praised the SA Reserve Bank for successfully anchoring inflation expectations and said it expected inflation to fall within the target range of between 3% and 6% by the end of 2023. While the IMF noted that the government was progressing with structural economic reforms, particularly through Operation Vulindlela, it said more reforms were needed.
In a statement in response, the Treasury said: “The Treasury takes note of the main findings of the IMF staff following their consultations. The Treasury is aware of most of the risks to economic growth and is working on mitigating measures to address these.”