When the National Treasury added to the national debt burden last month with the approval by the New Development Bank of two loans to South Africa, Finance Minister Enoch Godongwana said ‘every cent is welcome’, says the writer.
It be unfair to gauge the progress of the South African economy under the GNU which has been in power for hardly two months, largely because of data and policy implementation lag.
The narrative going forward implicit in the latest International Monetary Fund (IMF) Post-Financing Assessment (PFA) on South Africa released on September 4, has hardly changed over the last few years – a reality millions of compatriots are only too familiar with defined by an entrenched cost-of-living crisis and a motley of non-performing socio-economic metrics.
South Africa’s economy, said the Fund’s Executive Board, “has shown resilience in the face of massive disruptions, but persisting structural challenges risk a further erosion of living standards. However, per-capita income growth continued to decline, public debt rose further, and unemployment and poverty rates remained at unacceptably high levels.”
The smidgeon of hope is that the economy grew by 0.4% in Q2 2024, and the country experienced no load shedding in the second quarter.
GDP growth is projected to reach 1% in 2024, “on the back of improved investor sentiment and electricity generation”, stabilising at 1.4% in the medium term based on the caveats of progress in structural reforms by the GNU.
There are those who decry the over-reliance on over-simplistic GDP metrics as a measure of economic performance, financial stability and soundness. I tend to agree and would like inequality gaps, income and wage differentials, capital ownership, productivity, affordability, accessibility, safety nets and relevant social indicators to be included. In contrast, the impression one may get, rightly or wrongly, is that the IMF is overly pre-occupied with member states’ capacity to repay their debts to the Fund.
After all South Africa,” according to the IMF, “is assessed as having adequate capacity to repay its obligations to the Fund following its access in 2020 to financial assistance under the Rapid Financing Instrument (SDR3.1bn) to address the aftermath of the pandemic.”
The modus operandi of multilaterals such as the IMF, World Bank, the New Development Bank (NDB) and government agencies and linked entities including Statistics SA, is that they tend to prefer to over-nuance the positives no matter how modest, but in reality tend to consolidate the marginalisation of the real economy plight of citizens and stakeholders, and how the consequences of government policies, sometimes aided and abetted by the international agencies, affect the daily lives of ordinary people especially the cost-of-living challenges and often their very survival.
The usual mantra is that they cannot get involved in the internal politics of member states or seen to be critical of their governments.
A recent IMF report for instance on the Netherlands astonishingly omitted any reference to the fact that the country’s election in November 2023 saw the emergence of the Far Right racist Islamophobic anti-immigration party PVV as the largest single party, which forms a key component of compromise Prime Minister Dick Schoof’s coalition as if political risk does not apply to the Dutch.
Never mind how this would impact the Dutch economy, and the financial markets and its relations with the resource-rich OIC countries. In contrast IMF reports do not shy away from references to conflict, political instability, coups and corruption in developing countries especially in Africa, Asia and Latin America.
The reality of course is that both the global economic gatekeepers and government agencies are highly political institutions whether they acknowledge it or not.
The consensus is that South Africa continues to face significant macro-economic challenges, of which the entrenched ones include low GDP, high public debt, poor governance often reflecting weak policies and structural rigidities which undermine key economic sectors such as electricity and logistics, high unemployment, and one of the highest levels of inequality in the world.
On the upside, South Africa’s diversified economy and mineral wealth, flexible exchange rate, inflation-targeting framework, deep financial markets, and ability to issue domestic-currency debt remain sources of strength. Some progress has been made under Operation Vulindlela and other policies some propped up by a widening social grant safety net whose affordability strongly impacts on other sectors, but these are hardly the stuff that injects any meaningful feel-good factor in the psyche of compatriots and business.
A lot is pinned on faster reform implementation supported by the GNU. An inability of the GNU to agree on reforms, a slowdown in trading partner growth, intensification of geo political tensions, and tighter global financial conditions could all effect the country’s economic prospects. The DA, like all the GNU parties, should reflect on their conduct in the coalition. The impression is that they are all jockeying for portfolio power as if they are operating as state within a state.
No sooner had Stats SA announced the Q1 GDP figures, the DA saw fit to issue a press release urging that the “GNU must prioritise economic growth. We now have a new government, yet the fundamental issues plaguing our economy persist.”
The DA like some of the others are ideological activist coalition partners judging by the barrage of endless press releases and running condescending commentary on what the GNU must do instead of getting on with their portfolio mandates.
Finance Minister Enoch Godongwana was generous in his acknowledgement of the IMF’s PFA and the commitment of the GNU “to prioritise rapid, inclusive and sustainable economic growth to tackle prevailing high levels of unemployment, poverty and inequality.”
This even though the Fund’s growth projections are more subdued than those of the “sanguine” South African authorities. While the IMF projects South Africa to grow by 1% in 2024, the National Treasury’s projected growth of 1.3% in 2024 in its February 2024 Budget Review.
The SA Reserve Bank (SARB) projected growth at 1.1% this year in its July 2024 Monetary Policy Committee (MPC) forecast report. Similarly, the IMF projects medium-term growth of 1.4% compared with the National Treasury’s forecast of 1.8% in 2026.
Such are the vagaries of the politics of hubristic political optimism in South Africa. Despite a modest primary surplus (0.4% of GDP in Q2 2024), South Africa’s public debt rose to 74.1% of GDP, reflecting rising debt service and Eskom debt relief.
On August 31, the National Treasury added $1bn and R5bn to the national debt burden when the NDB approved a $1bn loan to South Africa for financing water and sanitation infrastructure development under the Municipal Infrastructure Grant (MIG) and a R5bn loan agreement with the controversial and highly indebted Transnet.
“The NDB loans will go a long way in assisting us with the funding challenges faced by some of our programmes and parastatals. Every cent is welcome,” advised Godongwana.
But he had a familiar message too for the BRICS multilateral development bank – provide solutions aimed at de-risking infrastructure projects through its financial instruments to attract the participation of much-needed private capital, and to speed up disbursements of approved projects.
* Parker is an economist and writer based in London
Cape Times
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