While government concurs with the International Monetary Fund's (IMF) view on the need to implement reforms as set out in the National Development Plan (NDP), it remains committed to achieving inclusive growth that will create jobs.
“Government concurs with the IMF’s views on the urgency to advance the implementation of our reform agenda as set out in the National Development Plan. We remain committed to achieving inclusive growth that will create jobs, eradicate poverty and reduce inequality,” said National Treasury.
Treasury was responding to the IMF’s Article IV consultation with South Africa that took place between 28 May and 11 June 2018.
As part of its surveillance mandate prescribed in the IMF’s Articles of Agreements, the fund visits each of its member countries annually to conduct an economic and financial assessment of government policies and provide policy recommendations.
During the consultation, the IMF met with various stakeholders, including government, state-owned enterprises (SOEs), business, organised labour and academia.
Treasury said Cabinet, on 4 July 2018, considered and noted the content of the report and acknowledged key risks identified and policy recommendations made by the IMF.
South Africa values on-going engagements and work programmes with all multilateral institutions, including the IMF.
The IMF acknowledged that South Africa’s economy remains well integrated in the global economy, diversified and has a sophisticated financial services sector.
The IMF in its review welcomed ongoing initiatives to further buttress financial sector stability, including the new Financial Sector Regulation Act that lays the foundations of the Twin Peaks model of financial regulation.
In addition, the IMF noted that strong institutions and a young workforce will contribute to higher growth potential.
The report, however, noted impediments to growth including policy uncertainty and regulatory overreach that hinders private investment, inefficiencies in state-owned enterprises (SOEs), labour market rigidities, insufficient competition in product markets and corruption.
In addition, the IMF’s growth forecast of 1.5 % for 2018 was unchanged from its World Economic Outlook (WEO) projection in April 2018. This is in line with National Treasury’s projections at the time of the 2018 Budget.
The IMF was concerned at the rapid increase in public debt as a share of Gross Domestic Product (GDP), which has doubled over the last decade, depleting fiscal buffers and constraining fiscal policy space.
Risks related to potential SOEs bailouts will further constrain fiscal policy, noted the report.
On the issue of corruption, the IMF acknowledged South Africa’s recent reform efforts to combat corruption.
They argued that to improve growth and reduce poverty, these actions have to be followed by strict enforcement of good regulations.
“In addition, clear communication of policies and regulatory decisions is essential to clarify any uncertainty that is weighing on investor sentiment,” said Treasury.
Treasury said its baseline growth outlook is broadly aligned with the IMF’s projections for the near term, but more optimistic over the medium term.
“National Treasury projects GDP growth of about 2.1 % in the medium term (compared to 1.8 % by the IMF under its baseline scenario), supported by a greater recovery in private consumption and public investment due to the ongoing improvement in confidence.
“Government continues to prioritise job creation and improving investor confidence through addressing policy uncertainty to attract investment. South Africa will host a Jobs Summit later this year to bring together business, labour and government with the objective of boosting employment,” said Treasury.
Another initiative to support this goal is the Youth Employment Service (YES) initiative, which was launched in March 2018 with the aim of creating one million paid internships for South African youths over the next three years.
Furthermore, an Investment Conference will also be held in South Africa, targeting both domestic and foreign investors with the aim of realising the $100bn target over the next five years.
“Steady progress has been made in regards to structural reforms, including, the establishment of a Presidential SOE Council and the issuance of a new draft of the Mining Charter for public comment. With regards to improving governance, South Africa has announced board changes at SOEs and is also addressing financial management challenges facing SOEs,” Treasury said.