South Africa needs to urgently take action to ensure a soft landing for its economy in the wake of the headwinds caused the Ukraine war, floods and the slowdown in China, the International Monetary Fund said on Wednesday.
In a statement at the conclusion of consultations with South African authorities, an IMF mission that was recently in the country said Pretoria has to urgently respond to “a series of shocks” that is affecting its economic outlook.
“The flooding in Durban, uncertainty about the war in Ukraine, tightening of global financial conditions, and China’s slowdown pose challenges to growth and price stability,” mission head Ana Lucía Coronel said.
She added: “Policy action needs to focus on mitigating the impact of these shocks while addressing longstanding structural economic obstacles to growth.”
She noted that the South African economy was on a path towards recovery from a COVID pandemic-induced contraction on the back of favourable commodity prices, which have raised exports and government revenue.
“The economy’s recovery from the pandemic should continue this year as lagging sectors (tourism, hospitality, and construction) gradually catch up,” Coronel said.
The official, however, said the growth projectile is being constrained by a number of structural impediments such as the frequent loadshedding and failures in the transportation system, which are limiting the gains from the commodity price boom.
Troubled state-owned power utility Eskom and rail operator Transnet should transform their business models to improve their performance and ensure they become more sustainable, she said.
“The operations, finances, and governance of Eskom and Transnet need to be improved decisively and quickly,” Coronel said, adding that any solution to Eskom’s debt problem must be preceded and accompanied by concrete and credible actions to downsize the company’s balance sheet and restore its commercial viability.
These include efforts to cut costs and collect arrears, as well as a more predictable tariff-setting mechanism.
“Transnet needs to restore the operational capacity of the freight rail system and improve the efficiency of its ports, including by accelerating reforms that attract private sector investment.”
The IMF mission was in the country from May 26 to June 6.
JN/APA