CAPE TOWN - No matter what spin Finance Minister Enoch Godongwana puts on it, the concluding statement on the annual IMF Article IV consultation on South Africa on December 8, betrays a huge divide between the National Treasury and the International Monetary Fund’s recipes for tackling the country’s economic woes.
Not that there is no mutual meeting of minds on aspirations and the state of the economy.
The “schism” if you read between the lines is inherently structural. The metrics of divergence include reducing barriers to greater private sector investment, increasing labour market flexibility, addressing weak governance and corruption, putting debt on a sustainable path.
Jousting between the fund and especially emerging countries is a long-standing pastime, especially during times of crisis.
As its single largest equity subscriber by far and the world’s largest economy, the IMF, rightly or wrongly, is perceived by some as an extension of the US foreign economic and financial policy.
Others more extreme perceive it as a neo-colonialist throwback of the post-war Bretton Woods dispensation.
Few have dared to take on the IMF. A notable exception is Mahathir’s Malaysia which rejected help during the 1998 Asian financial crisis, instead devising a home-made restructuring of corporate and financial sector debt, whose success won many plaudits.
South Africa’s relationship with the IMF is in some respects unique. It became a member of the fund in 1945, three years before the white supremacist National Party came to power and ruled in apartheid infamy till its collapse in 1994.
Not surprisingly, this relationship is deeply rooted in politics and ideology. One of Nelson Mandela’s red lines was to embrace the IMF with a begging bowl.
Covid-19 ostensibly put paid to that, but the real reason is that the Zuma kleptocracy had depleted Treasury coffers to such an extent that the country had no option but to accede to a $4.3 billion (R68.7bn) IMF Rapid Financing Instrument in July 2020 or alternatively to tap more expensive debt from the international markets.
Pretoria has only accessed six IMF “arrangements” in its 76-year membership. Its outstanding debt at September 30, 2021 is $4.3bn, which is 100% of its 3 051.2 million special drawing rights (SDR) quota. Its quota under the recent new SDR allocation is 4 421.93 million SDR, the official currency of the IMF.
As the ANC’s former economic guru, Godongwana is only too familiar with the ideological infighting within his party.
To some the IMF remains a paragon of free market “neo-liberal” economics at odds with the “socialist” ideal of the ANC’s hard-left, propped up by associated trade unions and junior coalition partner, the SACP. Any tampering with state intervention is anathema.
One cannot but sympathise with Godongwana. The public sector wage indaba in April was supposed to be for four years.
Instead, the government caved in with a one-year compromise simply kicking the issue down the line. Policy procrastination has been the bane of the Treasury’s economic management since the removal of Zuma.
Ana Lucia Coronel, leader of IMF’s South Africa team, held detailed virtual meetings with South African authorities over a three-week period ending on December 7.
Between the plaudits of the projected 4.6% GDP rebound in 2021, inflation contained at a projected 4.4%, a flexible exchange rate, improving business confidence and resilient financial sector, she maintains that “the rebound has not decreased unemployment amid deteriorating confidence (exacerbated by the social unrest in July), and anaemic private-sector investment. Staff project a lacklustre medium-term outlook, with growth averaging 1.4% per annum, inflation returning to the 3-6% target range, and the external current account reverting to its structural deficit”.
The country’s economic fragility was underlined a day before the IMF statement, when Stats SA declared that real GDP slumped by 1.5% in Q3, 2021 after four consecutive quarters of positive growth, eroding some of the economic gains made earlier.
Where reforms to attract private-sector participation in energy generation and port and railway operations have been introduced, these needed to be supported “by steadfast action to address Eskom’s and Transnet’s operational and financial problems. Governance weaknesses are a serious problem that continues to jeopardise operations of both institutions”.
Eskom spends more than it earns, reflecting its operational inefficiencies and unsustainable debt-level.
The glimmer of hope, says the fund, is that “the economy’s sources of strength can support the necessary growth revival.
The Ramaphosa government’s Achilles heel, however, remains the “absence of decisive action to address obstacles to investment and reduce the government’s need to borrow. Declining private investment and productivity need to be urgently reversed, so that the country can produce goods and services of higher quality at lower costs that can compete in global markets, thus generating more jobs, reducing poverty and inequality”.
There is also the crucial need to put the country’s public finances in order to reverse the upward public debt trajectory thus reducing debt-servicing, increasing market confidence and attracting investment.
Never mind South Africa’s commitment to COP26 to phase out coal towards a “just transition to a low-carbon, climate-resilient future”. A R131bn mobilisation in concessional and grant funding over the next five years is hardly going to make a dent in the path to net zero.
For Godongwana, the mood music for the South African economy, tempered by the depressing Omicron overture over Yuletide, will continue to be sombre over the next year.
The IMF’s concluding statement is a misnomer. It is merely a preliminary teaser prior to the unleashing of the full Article IV consultation report in February.
His riposte that “in general, the IMF’s concerns are aligned with the government Economic Reconstruction and Recovery Plan. There has been some progress in implementing structural reforms to support economic growth. The government underscored its commitment to fiscal sustainability, enabling long-term growth through narrowing the Budget deficit and stabilising debt”, is as economical with reality as it is with the ANC’s delivery record.
Parker is an economist and writer based in London
Cape Times