Sun. Jul 21st, 2019

IMF identifies Eskom as “a major risk” to South Africa’s growth

eskom IMFThe IMF, in its main findings, found that SA’s growth outlook is dependent on the pace of structural reforms, particularly at Eskom.

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National Treasury has welcomed and noted the key risks identified – including Eskom – and proposed policy recommendations by the International Monetary Fund (IMF) during a recent visit to the country last month.

The IMF visited South Africa from 27 – 31 May 2019 to discuss economic developments in the country. IMF staff met with government, the South African Reserve Bank, State-owned enterprises (SOEs), business and academia.

Officials from the IMF travel to South Africa twice a year as part of their surveillance function. This visit by the staff does not result in a board discussion or publishing of a report on South Africa’s economy.

IMF identify Eskom as “a major risk”

In a statement issued after the visit, the IMF in its main findings found that South Africa’s growth outlook is dependent on the pace of implementation of structural reforms such as strengthening governance, encouraging competition, increasing labour market flexibility and reducing the cost of doing business.

“South Africa’s fiscal deficit is set to worsen primarily due to South Africa’s growth outlook, which will put additional pressure on debt levels. A major risk to South Africa’s growth is the weak finances and operations of SOEs, especially Eskom.”

IMF

The IMF also found that inflation has remained at or below the midpoint of the official target range and financial stability has been maintained.

National Treasury in a statement said the South African government is cognisant of this and work is underway to address them.

Treasury respond to IMF findings

Since South Africa’s last IMF Article IV Consultation (28 May – 11 June 2018), steady progress has been made with regards to structural reforms, according to official Treasury personnel.

Among these is the published Mining Charter, which assisted in providing regulatory certainty. This was after the government withdrew the Mineral and Petroleum Resources Development Amendment Bill.

“This was positively received by both domestic and international investors and subsequently, South Africa gained 27 places under the Policy Perception Index and also made gains under the overall Investment Attractiveness Index in the Frasier Institute’s most recent Mining Investment Survey (2018).

“On the Investment Attractiveness Index, South Africa improved its ranking from 48 in 2017 to 43 out of 83 jurisdictions surveyed in 2018.”

National Treasury

Treasury “aware” of need to fix Eskom

Another intervention was that of President Cyril Ramaphosa in February signing into law the Competition Amendment Bill.

This is in an effort to further empower the competition authorities to address the high levels of economic concentration and open new opportunities for South Africans to enter and compete on an equal footing in various sectors in the economy. Treasury also acknowledged that things must be changed at Eskom.

“Improving governance is also a key focus. South Africa has announced Board changes at SOEs and is also addressing financial management challenges, specifically at Eskom. Various measures are being finalised, including restructuring of the utility to turn it around.”

National Treasury

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