Jacob Zuma: hard times in 2016 for South Africans

South Africa faces a challenging economic environment, with an expected 0.6-percent growth for 2016 and falling per-capita income, the International Monetary Fund (IMF) said on Friday.

A muted recovery is envisaged from 2017, the IMF said in a statement after conducting an inspection mission to Pretoria, Johannesburg and Cape Town from April 18 to May 4, to conduct the 2016 Article IV Consultation discussions with South Africa.

“South Africa needs to create an environment that facilitates high and inclusive private sector-led growth that creates more jobs. The government and the South African Reserve Bank (SARB) have taken appropriate steps to counter rising government debt and inflation,” said Laura Papi, an economic expert who led the mission.

Moving forward, structural reforms are imperative to reduce policy uncertainty, boost confidence, tackle structural impediments, and lower vulnerabilities, she said.

The team noted the progress made by government in addressing infrastructure bottlenecks, especially in the electricity sector, Papi said.

The SA government has committed to state-owned enterprise (SOE) reform, and is strengthening public procurement. A comprehensive package of structural reforms remains the preferred option to create jobs and reduce inequality.

An initial, focused set of tangible measures could help generate sustained reform momentum, Papi said.

“The government’s 2016 Budget targets are appropriately ambitious, but may be challenging to achieve if the IMF’s macroeconomic projections materialize, she said.

Papi suggested that policies to maintain debt sustainability are essential to preserve investor confidence, but need to be carefully calibrated to avoid pressuring an already-weak economy.

“Strengthening governance, private participation in SOEs and greater spending efficiency are key interventions to improve SOE performance and service delivery,” Papi said.

After the SARB’s recent rate hikes, monetary policy may be able to remain on hold, though more tightening could be needed if inflation expectations and core inflation rise significantly, said Papi.

She said the government and the SARB are advancing key financial sector reforms, and stress tests carried out by the SARB suggest the banking sector remains resilient.

The SARB could seize opportunities to build international reserves, especially in case of large, FDI-related foreign exchange inflows, she suggested.