South Africa needs to increase pace of reforms, IMF says

The damage from the recent riots could cost the country $3.4bn and put 150,000 jobs at risk

Police and soldiers prepare to restore order in Durban after rioting and looting hit KwaZulu-Natal province in South Africa earlier this month. AFP

South Africa should aim to reprioritise its budget to offset the cost of relief measures for businesses and people affected by deadly riots and hasten reforms to foster inclusive economic growth, according to the International Monetary Fund’s resident representative for the country.

“This is a tragedy, but at the same time, we can’t lose sight of the fiscal realities,” Max Alier said on Friday.

At least 330 people died and thousands of businesses in the commercial centre of Gauteng and the eastern KwaZulu-Natal province were looted or burnt down in unrest that erupted on July 10. The turmoil could cost the country about 50 billion rand ($3.4bn) in lost output and has placed 150,000 jobs at risk.

President Cyril Ramaphosa may unveil a package aimed at helping those affected by measures to curb the spread of the coronavirus.

While the Washington-based lender understands that new spending priorities have emerged in the wake of the unrest, the authorities should ideally reprioritise expenditure to offset relief measures and try to keep the fiscal framework intact, Mr Alier said.

Deviations from the National Treasury’s projection that debt will peak at 88.9 per cent of gross domestic product in the 2026 fiscal year could put public finances on an “explosive path”, he said.

If the relief package cannot be fully offset, then the government must fast-track the enactment of structural reforms that attract private investment, lift economic growth and create jobs, said Mr Alier.

Africa’s most industrialised economy contracted by the biggest amount in a century in 2020 and lost 1.4 million jobs as restrictions to curb the spread of the coronavirus weighed on output and forced some businesses to cut wages, reduce staff or close permanently.

The unemployment rate, which reached a record 32.6 per cent in the first quarter, has remained above 20 per cent for at least two decades.

“The social support that is being discussed is a temporary band-aid solution,” said Mr Alier. “The ultimate solution is to create the conditions for people to get jobs.”

Energy security and the allocation of broadband spectrum should be the government’s top reform priorities, he said.

Authorities should also work on labour market changes and enhance competition, which will make the economy more dynamic and create room for small and medium businesses to grow and create jobs, he said.

While the IMF is due to raise its 2021 economic growth forecast of 3.1 per cent for South Africa on July 27, after a better-than-expected first-quarter expansion, the upward revision will be capped by this month’s unrest, said Mr Alier.

Economists including Michael Kafe of Barclays see the riot damage shaving as much as one percentage point off GDP growth this year.