Finance

(a)     The IMF’s Article IV visit’s concluding statement released on the 19^th of November 2018 held    the following key views on economic developments in South Africa:

The IMF noted the efforts of the new leadership to strengthen governance and open up dialogue with the private sector, but acknowledged that the implementation of this has faced some challenges. Moves towards the bolstering of the finances of state-owned enterprises (SOEs), reductions in the cost of doing business and increased competitiveness and consumption are slowly making headway, albeit at a very slow pace. Increased tensions in the global macroeconomic environment have had adverse effects on the South African economy as evidenced by large capital outflows caused by the selling off of South African assets by non-resident investors. This has contributed to rand depreciation and increased currency volatility. As per the 2018 MTBPS, public debt and contingent liabilities are expected to continue growing as expenditure on wages and interest repayments grow. Room for continued monetary policy support is narrowing and inflation is likely to inch towards the upper spectrum of the 3 to 6 per cent inflation target range over the medium term. Increasing inequality and unemployment could provide an incentive for populist movements.  

Given this somewhat gloomy economic environment, now is the time to show South Africa’s commitment to change in order to restore investor confidence by doing the following key things:

• Resolving governance issues and revising the business models at SOEs
• Revising labour market practices such that wage increases are in line with productivity gains
• Addressing skills mismatches and shortages by improving basic education outcomes and vocational training.
• Enhancing competitiveness of all sectors of the South African economy by implementing strategic reductions in input costs and barriers to entry such that they are in line with or below those of competing economies.
• Reducing uncertainty around land reform and making agricultural productivity and security of tenure, particularly in urban areas, the central focus of land reform.

In addition to this, sound macroeconomic policies should complement the leadership’s reform efforts; these include gradual fiscal policy tightening with a focus on improved efficiency in public spending, containing the public sector wage bill and improving the tax collection capacity of the South African Revenue Service (SARS). The IMF also suggests the implementation of a debt anchor to the fiscal framework in addition to the debt ceiling, this addition would signal the government’s commitment to debt reduction.

(b)     The impact of the concluding remarks on the Western Cape

The observations and recommendations made by the IMF are largely focused on macroeconomic policies and national competencies. The most direct role that can be played by the Western Cape government is the continued focus on fiscal sustainability within the provincial budget. In line with the Western Cape Government’s stance on infrastructure led growth, the IMF reiterates the need to carefully select public infrastructure projects and improve project implementation capacity within the budget framework. Engaging the private sector by being transparent and providing opportunities for entrepreneurs and innovators to enter the space, will help to boost investor confidence in the Western Cape.