South Africa’s economic growth prospects are poised to recover in 2025 following a lacklustre economic performance for the past two years.
This is according to an economic and financial assessment by the International Monetary Fund (IMF), which shows real Gross Domestic Product (GDP) output growth is expected to accelerate from an estimated 0.8% in 2024 to 1.5% in 2025, driven by improved electricity generation, monetary policy easing, and a return of investor and consumer confidence post elections.
The IMF published the findings of its Article IV Consultation with South Africa, which was held from November 11-25, 2024. As part of the surveillance role, the IMF conducts periodic economic and financial assessments with each member country.
It acknowledged progress in banking-resolution and safety-net reforms and praised macro-prudential measures to bolster capital buffers. However, it raised concerns regarding rising public debt and the challenges South Africa faces to meet climate goals.
In addition, the IMF welcomed the ongoing electricity and logistics reforms aimed at alleviating supply constraints and called for the ambitious implementation of these reforms.
The fund indicated that meeting South Africa’s climate goals required further efforts to increase effective carbon tax and accelerate the rollout of renewable energy.
It projected growth to reach 1.8% by the end of the decade, supported by ongoing electricity and logistics reforms.
“Risks are tilted to the downside, related to a possible intensification of geoeconomic fragmentation and protectionist policies in the context of an uncertain global environment,” the organisation said.
“With fiscal deficits moderating but still elevated over the medium term, the IMF projects public debt to continue to rise under its baseline scenario, recommending a more-ambitious-than-envisaged fiscal consolidation.”
The IMF expects inflation to stabilise around the midpoint of the central bank’s target range. It recommended that the central bank continue to manage the normalisation of the rate policy toward a neutral level in a flexible and data-driven manner.
It argued that transitioning from a target band to a lower point target with a well-calibrated tolerance band at an appropriate time could help strengthen macroeconomic stability.
National Treasury said in a statement that the IMF’s concerns were aligned with government’s response to confronting immediate and long-term economic challenges.
“The National Treasury is committed to implementing reforms that will enhance inclusive economic growth, achieve a sustainable public debt level, further repair and strengthen network industries, and strengthen state capacity to support economic activity.”
In its 2024 Medium Term Budget Policy Statement (MTBPS), the National Treasury estimated economic growth to increase from 1.1% in 2024 to 1.7% in 2025.
It attributed gains in the economy to household consumption gradually increasing, supported by rising purchasing power, employment recovery and wealth gains.
“South Africa is committed to fiscal consolidation and to setting debt on a sustainable path. The fiscal year 2023/24 was a significant success, with the first primary surplus in 15 years being recorded in 2023/24.
“An overall main budget deficit of 4.7% of GDP is expected for the current fiscal year. This is projected to decline to 4.3% in 2025/26. Meanwhile, debt as a percentage of GDP is expected to stabilise in the 2025/26 financial year, with debt-service costs as a percentage of revenue also peaking at the same time,” National Treasury said.
The current focus of the country’s reform agenda includes the stabilisation of the electricity grid, enhancing the efficacy of freight and port operations, implementing e-visas, as well as prioritising the advancement of targeted industries to enhance the business climate and promote equitable growth.
“Following its successful first phase, Operation Vulindlela will be going into its second phase with new initiatives aimed at reversing local government decline, tackling spatial inequality and advancing a digital government to improve service delivery,” National Treasury said.
These initiatives will enhance focus areas of phase one, namely, reducing power cuts, improving the logistics system, lowering data costs, improving water supply and attracting critical skills.
The Sarb performed its first stress test of South Africa's key insurance firms during the 2023/24 cycle, which revealed that climate-related risks were prominent.
“Ongoing efforts to exit the Financial Action Task Force (FATF) grey list during 2025 are well under way, with 16 out of 22 action items having been addressed,” National Treasury said. - SAnews.gov.za
