Government

South Africa’s economic growth prospects are poised to recover in 2025 following a lacklustre economic performance for the past two years.

According to an economic and financial assessments by the International Monetary Fund (IMF), the real Gross Domestic Product (GDP) output growth is expected to accelerate from an estimated 0.8 percent in 2024 to 1.5 percent in 2025 driven by improved electricity generation, monetary policy easing, and a return of investor and consumer confidence post elections.

On Thursday, the IMF published the findings of its Article IV Consultation with South Africa, which was held from 11-25 November 2024. 

As part of the surveillance role, the IMF conducts periodic economic and financial assessments with each member country.

The IMF acknowledged progress in banking-resolution and safety-net reforms and praised macro-prudential measures to bolster capital buffers. However, it raised concerns on the rising public debt and the challenges South Africa’s faces to meet climate goals.

In addition, the IMF welcomed the ongoing electricity and logistics reforms aimed at alleviating critical supply constraints and called for the ambitious implementation of these reforms. 

The Fund indicated that meeting South Africa’s climate goals requires further efforts to increase effective carbon taxation and accelerate the rollout of renewable energy.

The IMF projects growth to reach 1.8 percent by the end of the decade, supported by ongoing electricity and logistics reforms. 

“Risks are tilted to the downside, related to a possible intensification of geoeconomic fragmentation and protectionist policies in the context of an uncertain global environment.

“With fiscal deficits moderating but still elevated over the medium term, the IMF projects public debt to continue to rise under its baseline scenario, recommending a more-ambitious-than-envisaged fiscal consolidation,” the IMF said.

The IMF expects inflation to stabilise around the midpoint of the central bank’s target range. 

The Fund recommended that the central bank continues to manage the normalization of the policy rate toward the neutral level in a flexible and data-driven manner.

The IMF argues that transitioning from a target band to a lower point target with a well-calibrated tolerance band at an appropriate time can help strengthen macroeconomic stability.

National Treasury’s response

National Treasury noted that the IMF’s concerns are aligned with government’s response to addressing immediate and long-term economic challenges.

“The National Treasury is committed to implementing reforms that will enhance inclusive economic growth, achieve a sustainable public debt level, further repair and strengthen network industries, and strengthen state capacity to support economic activity.”

In its 2024 Medium Term Budget Policy Statement (MTBPS), the National Treasury estimated economic growth to increase from 1.1 percent in 2024 to 1.7 percent in 2025.

It attributed the gains in the economy to household consumption gradually increasing, supported by rising purchasing power, employment recovery and wealth gains.

“South Africa is committed to fiscal consolidation and to setting debt on a sustainable path. The fiscal year 2023/24 was a significant success, with the first primary surplus in 15 years being recorded in 2023/24. 

“An overall main budget deficit of 4.7 per cent of GDP is expected for the current fiscal year. This is projected to decline to 4.3 per cent in 2025/26. Meanwhile, debt as a percentage of GDP is expected to stabilize in the 2025/26 financial year, with debt-service costs as a percentage of revenue also peaking at the same time,” National Treasury said.

The current focus of South Africa’s reform agenda includes the stabilisation of the electricity grid, enhancing the efficacy of freight and ports operations, implementing e-Visas, as well as prioritizing the advancement of targeted industries to enhance the business climate and promoting equitable growth. 

Nearly 94 percent of the reforms aimed for implementation by 2024 have been accomplished or are significantly progressing. 

“Following its successful first phase, Operation Vulindlela, will be going into its second phase with new initiatives aimed at reversing local government decline, tackling spatial inequality and advancing a digital government to improve service delivery,” National Treasury said.

These enhance the key focus areas of the first phase  - namely, reducing power cuts, improving the performance of the logistics system, lowering data costs, improving water supply and enabling the country to attract critical skills.

The SARB performed its first stress test of South Africa's key insurance firms during the 2023/24 cycle, of which climate-related risks were prominent. Ongoing efforts to exit the Financial Action Task Force (FATF) grey list during 2025 are well underway, with 16 out of 22 action items having been addressed,” National Treasury said. - SAnews.gov.za