Government recognises the need to address deep-rooted socio-economic challenges, including unemployment, inequality, and poverty, while stabilising government debt.
The comment was made by the National Treasury in response to an International Monetary Fund (IMF) assessment of the country’s economy.
From 26 May – 6 June, IMF staff held meetings with South Africa as part of their routine economic surveillance function, as prescribed in the IMF’s Articles of Agreement.
Economic developments in the country were under discussion during the meetings with IMF staff, government, the South African Reserve Bank, state-owned enterprises (SOEs), business and academia.
The visit by IMF staff did not result in a board discussion or publication of a report on South Africa’s economy, said Treasury in a statement.
In its findings, the IMF was of the view that South Africa’s economic recovery from the COVID-19 pandemic should continue this year as some sectors such as tourism, hospitality and construction, gradually improve.
The staff noted that South Africa was benefiting from favourable commodity prices, which had raised exports.
Nonetheless, the IMF pointed to various shocks that continue to affect the country’s economic outlook. These include the KwaZulu-Natal floods, uncertainty arising from the conflict in Ukraine, tightening of global financial conditions and lower economic growth in China.
“The IMF staff acknowledges progress made in implementing structural reforms and encouraged South Africa to deepen and speed up implementation of structural reforms to address a number of obstacles.
Areas needing urgent attention include growth, load shedding, and addressing deficiencies in the transportation system, which limit the benefits from the higher commodity prices,” said Treasury.
Other key reform areas highlighted include improving procurement processes, transforming network industries, fostering competition to attract private investment; and advancing the functioning of the labour market.
In addition, IMF staff underscored that operations, finances and governance of Eskom and Transnet should be improved to contribute to the sustainability of public finances.
“The staff emphasised the need to implement growth-friendly fiscal consolidation to ensure that the country’s debt as a percentage of GDP is on a declining and sustainable path. Containment of compensation costs and streamlining transfers to SOEs were some of the recommendations tabled.
“In addition, the staff underscored that operations, finances and governance of Eskom and Transnet should be improved to contribute to the sustainability of public finances,” read the statement.
Economic recovery
Responding to this, Treasury said government’s steadfast commitment to restoring sustainability to public finances was supported by better than expected revenue collection, albeit temporary, and fiscal restraint.
“As stated in the 2022 Budget, government is using a portion of the additional revenue to reduce the fiscal deficit and stabilise debt, with the majority targeted to address urgent social needs, promote job creation through the presidential employment initiative, and support the public health sector,” it said.
It said there was faster implementation of economic and SOE reforms, accompanied by fiscal consolidation to provide a stable foundation for growth, easing of investor concerns, and support a faster recovery and higher levels of economic growth.
The National Treasury acknowledged that South Africa’s economic recovery had been “uneven” and that “risks remain high”.
In general, it said, the IMF’s concerns were aligned with government’s response programme to stimulate economic growth, which was guided by South Africa’s Economic Reconstruction and Recovery Plan (ERRP) as well as commitment towards growth and fiscal sustainability.
On fiscal risks posed by some SOEs, the department said the Presidential State-Owned Enterprises Council was considering their value add and which SOEs would be rationalised or consolidated to reduce their continuing demand on South Africa’s public resources.
“The National Treasury is working on a sustainable solution to deal with Eskom’s debt in a manner that is equitable and fair to all stakeholders. Any solution will be contingent on continued progress to reform South Africa’s electricity sector and Eskom’s own progress on its turnaround plan and its restructuring,” it said.
Structural reforms
Treasury said it remains committed to fast-tracking structural reforms to foster job-led growth, as supported through Operation Vulindlela.
In this regard, 26 structural reforms were prioritised. Of these, eight reforms had been completed while another 11 are progressing well.
Key achievements to include:
- concluding the spectrum auction, opening bid windows five and six of the renewable energy programme
- publishing the draft electricity regulation amendment bill
- Cabinet approval of the white paper on the National Rail Policy
- publishing of the Green Drop report to ensure better monitoring of water and wastewater treatment quality
- publishing the revised critical skills list
- issuing of the RFP (Request For Proposal) to initiate third party access to the freight rail network.
The department said work was also underway to reform the procurement system as well as the launching of the e-Visa system in 14 countries.
On energy security, the Treasury said the process of unbundling Eskom was underway.
“On 17 December 2021 the National Transmission Company South Africa SOC Limited (NTCSA) was executed. Eskom has also applied to the National Energy Regulator of South Africa for the transmission license for the Transmission Company.
“On environmental matters, South Africa remains committed to address climate change based on science, equity and sustainable development. South Africa’s Presidential Climate Finance Task Team will advise the country on the execution of the Just Energy Transition (JET),” said Treasury.