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South Africa Set for Growth Take-off If Reforms Happen, IMF Says

South Africa Set for Growth Take-off If Reforms Happen, IMF Says
A cooling tower beyond buildings at the Eskom Holdings SOC Ltd. Tutuka coal-fired power station in Mpumalanga, South Africa, on 18 November 2021. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

South Africa could drastically boost economic growth if it fixes its ailing energy and logistics sectors, and reduces crime, a top International Monetary Fund official said.

With its abundant natural endowments and strong institutions, South Africa “is poised for a growth take-off if reforms that resolutely and courageously tackle structural obstacles are implemented,” Gita Gopinath, the fund’s first deputy managing director, told the South African Reserve Bank’s Biennial Conference in Cape Town on Friday. Addressing crime, education, electricity shortages and logistic constraints “are clear areas where if there is improvement you could see a substantial effect on growth,” she said.South Africa’s gross domestic product grew 1.9% last year and is set to expand just 0.3% in 2023, IMF estimates show, with power utility Eskom Holdings SOC Ltd.’s inability to meet demand and port and rail bottlenecks limiting output.

Read More on the Central Bank Conference:

Steps to improve the power supply – including relaxing restrictions on private power generation – could see the growth rate improve to 1.7% next year, IMF forecasts show.

Gopinath also urged South Africa to improve the performance of state-owned companies in critical sectors and allow for private sector participation, which would save it money and enhance the provision of the public services at a time when the government has limited fiscal space.

The nation’s interest bill is forecast to increase from about 19% of revenue this fiscal year to 27% by 2028-29 — about twice this year’s budget allocation for health, she said.

“As in other emerging markets, success in South Africa will require difficult reforms now that may not pay off until later, she said. “But it is an investment well worth making—and one that the IMF stands ready to support.”

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