The International Monetary Fund (IMF) has warned that South Africa’s growth was unlikely to exceed 2 percent in the medium term because of uncertainties surrounding land expropriation without compensation and lack of structural reforms in the economy.
The IMF said yesterday that turning the economy would require swift implementation of a bold reform agenda.
It said a clear articulation of how the land reform process would be carried out would help in addressing fears.
“Clearly articulating policy and regulatory decisions related to land reform in a fair, transparent and market-friendly manner would help remove uncertainty, which is currently weighing on investor sentiment,” the IMF said. “Policy uncertainty and a regulatory environment not conducive to private investment have resulted in GDP growth rates that have not kept up with those of population growth.”
The IMF currently expects South Africa’s economy to grow by 1.5 percent this year.
The economy limped at the start of the year with the first quarter GDP taking 2.2 percent – its worst since 2009. Last month, S&P warned that it would lower South Africa’s ratings if the implementation of land expropriation without compensation undermined investment and economic outlook.
Parliament has called for submissions from the general public ahead of its work in investigating the need to amend section 25 of the constitution to allow for the expropriation of land without compensation
The IMF is expected to provide its next outlook projections later in the year. John Ashbourne, an economist at Capital Economics, said land reform fears were overblown.
“Any law that results from the current process should be seen as an incremental expansion of the state’s existing land reform powers. Land reform is… an ongoing process in South Africa,” he said.
The IMF said it supported changes made in the boards and management of major state-owned entities (SOE), an inquiry into tax administration and the signing of contracts with independent power producers.
However, the Washington-based lender warned that downside risks to South Africa’s outlook remained prominent.
It said spending pressures – arising, for example, from weak SOEs or increasing public sector compensation – would heighten financing costs and weigh on growth.
The lender urged the government to take measures to contain spending and enhance tax collection.
The government and public sector unions recently concluded a three-year wage agreement.
Minister of Public Service and Administration Ayanda Dlodlo welcomed the wage deal but has warned that the 2018 salary agreement exceeded the amount envisioned in the Medium Term Expenditure Framework period by R30 billion. It said the public sector wage bill remained a major cause of concern.
“A large public-sector wage bill relative to the size of the economy and to that in many peer emerging markets is at the centre of the fiscal expansion,” the IMF said. “Weakening growth here could have negative and lasting spillover effects on neighbouring countries.”