IMF Concludes Annual Consultation with South Africa: Positive Outlook Amid Challenges

The International Monetary Fund (IMF) recently concluded its 2024 Article IV annual consultation with South Africa, highlighting a cautiously optimistic economic outlook. The IMF team, which visited from November 11-25, engaged with various stakeholders to discuss policies aimed at ensuring macroeconomic stability and fostering sustainable growth. 

The IMF's preliminary findings indicate a recovering domestic demand bolstered by post-election confidence, improved power generation, and declining interest rates. However, the IMF cautioned that risks remain, including potential geoeconomic fragmentation and slowdowns in key trading partners. 

The IMF emphasized the importance of ambitious structural reforms, particularly in the electricity and logistics sectors, to unlock South Africa's growth potential. Recommendations included the development of a competitive wholesale electricity market, establishment of an independent transmission system operator, and regulatory frameworks for transmission and distribution. Additionally, the IMF urged accelerated reforms to attract private-sector participation in freight rail and ports, alongside business-environment, governance, and labor-market reforms. 

The National Treasury (NT) welcomed the IMF's constructive engagement and noted that the IMF's concerns align with the government's priorities. The NT's economic outlook projects growth of 1.1% in 2024 and 1.7% in 2025, supported by improved energy supply and a balanced fiscal strategy. The government aims to achieve primary surpluses and stabilize debt at 75.5% of GDP by 2025/26. 

Operation Vulindlela, a key reform initiative, has already implemented significant actions to reduce power cuts, improve logistics, and lower data costs. The next phase will focus on reversing local government decline, tackling spatial inequality, and advancing digital government. Notably, the Electricity Regulation Amendment Bill and the National Transmission Company of South Africa are pivotal in establishing a competitive energy market. 

The NT remains committed to implementing reforms that promote sustainable and inclusive growth, improve the fiscal position, and enhance state capacity and effectiveness. The IMF's final report is expected to be considered by the Executive Board in January 2025.