IMF to SA: Economy’s ‘green shoots’ are real, but the debt trap looms large

Key topics:IMF sees SA stability improving but warns debt risk remains severeGrowth stuck near 1% as labour, logistics and governance block progressIMF urges private-sector drive and deeper fiscal reforms to curb debt.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..BizNews Reporter.There is a distinct sense of déjà vu, mixed with a refreshing dose of "I told you so," in the latest dispatch from the International Monetary Fund (IMF) team that just wrapped up its visit to South Africa and released its findings this afternoon.Led by Delia Velculescu, the IMF mission spent the first week of December assessing the economy. The resulting Article IV document reads like a report card for a student who has finally started doing their homework but remains at risk of failing the final exam due to years of bunking classes.The Resilience FactorFirst, the good news. The IMF has officially recognised what many of us on the ground have felt: the South African economy is more resilient than it looks. Despite a global environment defined by protectionism, tariffs, and geopolitical messiness, SA has held the line.The Fund explicitly acknowledged our "independent institutions"—a clear nod to the adults in the room at the South African Reserve Bank (SARB) and the National Treasury. The successful exit from the FATF grey list and the shift to a lower, credible inflation target (now anchored at 3%) are massive wins. These moves have already calmed financial markets and contributed to a credit rating upgrade.The Growth CeilingHowever, let’s not pop the bubbly just yet. While SA’s economy has been resilient, we aren't exactly rocketing. The IMF projects growth of just 1.3% for 2025 and 1.4% for 2026.Why the sluggishness? The usual suspects remain at large:Labour market rigidity (it’s still too hard to hire and fire).Logistics bottlenecks (Transnet remains a headache).Governance weaknesses..The IMF was blunt: The current "state-led development model" has hit a wall. It cannot address SA’s poverty or unemployment. The state is out of money, and its balance sheet is maxed out.The Fiscal DisagreementHere is where the rubber meets the road. Finance Minister Godongwana’s team has promised a primary surplus of 1.5% of GDP by FY26. The IMF has run the numbers and politely disagrees.Their view? A 1.5% primary surplus (ie revenue versus expenditure excluding interest payments) isn’t enough to stop the debt spiral. To reduce debt to a safe 70% of GDP by 2033, the IMF argues we need a primary surplus of 3%. That is double the current target.To get there, the IMF suggests the kind of bitter medicine a sugar-addicted political elite will find challenging to swallow:Slash the wage bill: The IMF wants performance-linked pay and a rationalised public service.Fix Procurement: The new Procurement Act needs teeth to stop the ‘leakage’ (polite speak for corruption).SOE Hardball: Stop throwing good money after bad. Transfers to SOEs must be strictly linked to actual operational improvements..The Private Sector PivotPerhaps the most encouraging part of the statement is the IMF’s realisation that the government cannot save the economy. "Unlocking the potential of the private sector... remains the only viable option," the report states.The IMF calls for an ambitious "red tape reduction" strategy. If we can close half the gap between our business environment and that of the top emerging markets, the IMF estimates SA could boost real output by 9%. That is the difference between stagnation and prosperity.The Bottom LineThe IMF has given South Africa a passing grade for stability but a warning on sustainability. We have mineral wealth, deep capital markets, and independent institutions. But unless the government accelerates the handover of electricity and logistics to the private sector and gets serious about cutting its own bloat, that 1.3% growth rate will become our ceiling, not our floor.The "green shoots" are there. Now, we need the political will not to trample them.

IMF to SA: Economy’s ‘green shoots’ are real, but the debt trap looms large

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