FINANCE Minister Enoch Godongwana might have to concede to revising South Africa’s growth forecast for 2023 lower in his Medium-Term Budget Policy Statement in October on the back of intensified energy crisis, which is exacerbated by slowing global economic activity.
This comes after Fitch Ratings slashed South Africa’s gross domestic product growth forecast for 2023 to zero, saying the severe power shortages in recent months were likely to weigh heavily on growth.
The ratings agency has become the first to firmly pronounce that South Africa’s economy will not grow at all this year, even when the SA Reserve Bank (SARB) is hoping for a slightly higher growth of 0.3%, though load shedding is expected to deduct 2 percentage points from growth.
Fitch also said it expected inflation to remain above the SARB’s 4.5% target in 2023, at 6.4% on average, due to the continued depreciation of the rand of about 15% against the US dollar and the cost of load shedding.
The Minister had in his February Budget speech projected real gross domestic product growth to average 1.4% from 2023 to 2025, as the reopening of the Chinese economy offered some reprieve.
Godongwana yesterday concurred that the rising cost of living was “likely to have an impact on food prices, which will more heavily impact poorer nations”. Godongwana was speaking at the 3rd Meeting of G20 Finance Ministers and Central Bank Governors in Gandhinagar, India, yesterday.
The meeting was aimed at addressing critical global economic challenges, including the threats posed by climate change and rising debt among low-income countries.
The G20’s commitment to transferring $100 billion (R1.8 trillion) in emergency pandemic aid – Special Drawing Rights (SDRs) – from wealthy to poor country economies was also on the agenda.
Last month, after more than two years, governments holding Zambia debt announced an agreement to reduce collection by the equivalent of 40%.
However, critics say not enough debt was cut to address the suffering of Zambia’s people as more than 60% of the country’s population lives in poverty.
Additionally, payments will increase if Zambia’s economy does better, and will not decrease if it does worse than expected, and the government still has to negotiate a restructuring of nearly $7bn in debt owed to private creditors.
Godongwana said he supported any debt restructuring that impacted positively on developing nations.
“The broad discussions around challenges to developing nations and debt restructuring are progressing very well,” he said.
“In terms of the common framework, we have done Zambia now and we are waiting for an memonrandum of understanding, we are expecting the appointment of another creditors team to look at Ghana, which is quite an important development for us,” Godongwana said.
“The second issue is the evolution of the multinational development bank to structure them in such a manner that they can take on development challenges facing our nations in the 21st Century.”
The G20 meetings provided a useful and productive platform to discuss pressing problems facing the global economy, and unlike previous meetings we made significant progress in issues like speedy and equitable debt resolution and the reform of multilateral lateral banks.
“The recent resolution of the Zambian issue shows what can be achieved when there is constructive engagement and a genuine desire to address the views of all sides. We are now looking forward to the meetings in Marrakesh to make even more progress The G20 Finance Ministers meeting comes as the International Monetary Fund (IMF) global economic growth forecasts remain the lowest in decades.”
IMF managing director Kristalina Georgieva said that although the global economy was anaemic by historical standards, it had shown some resilience, supported by strong labour markets and robust demand for services, despite successive shocks in recent years.
However, Georgieva said activity was slowing, especially in the manufacturing sector. “Looking further ahead, medium-term growth prospects remain weak,” Georgieva said.
“Moreover, divergences in economic fortunes across countries are a persistent concern: some pockets of the global economy are doing well; others are weakening but still growing; and vulnerable countries are falling further behind.”
Jubilee USA Network executive director Eric LeCompte said more than $400bn, out of $650bn the IMF created in 2021, went to wealthy economies which committed to redirect $100bn of their share to developing countries.
“Global economic challenges are pushing countries deeper into debt,” LeCompte said.
“The pandemic, the Russia-Ukraine war and high interest rates are raising debt in developing countries and these countries don't have the resources to respond to their food and climate crises.”