Unpacking the comments of the IMF after its most recent mission, an economist agrees that the pace of reform is too slow.
South Africa’s resilience in the past year that was filled with geopolitical tension that also affected the country’s own trade, sets the stage for 2026, but an economist warns that risks remain in 2026.
“The IMF recognised South Africa’s resilience in 2025 as well as key positive developments, offering a medium-term outlook that broadly aligns with ours. Its forecasts also provide an accurate snapshot of the country’s fiscal realities,” Jee-A van der Linde, senior economist at Oxford Economics Africa, says.
In its concluding statement of the 2025 Article IV Mission, the International Monetary Fund (IMF) said it expects domestic economic activity to improve gradually over the short term, with gross domestic product (GDP) projected to grow by 1.5% a year.
Robust commodity export receipts are currently offsetting the impact of US tariffs and ongoing electricity and logistics reforms should continue to underpin fixed investment over the medium term. Therefore, the IMF expects GDP growth to increase to 1.8% by 2030.
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IMF cautions abrupt global financial market correction can have adverse effects
In addition, the IMF noted that stronger global demand, the de-escalation of US tariffs and more ambitious domestic reforms could collectively support even stronger investment and growth. However, at the same time, the IMF cautions that an abrupt global financial market correction and tighter financial conditions would have adverse effects.
South African assets have been among the best performers in emerging markets this year but given the high degree of global financial market integration, the country is especially susceptible to the risk of an equally sharp correction that could precipitate capital flow volatility and lead to an exchange rate and sovereign bond sell-off.
Regarding the adjusted inflation target of 3%, the IMF projects that inflation will accelerate from an average of 3.3% this year to 3.6% in 2026, before stabilising at 3.0% by the end of 2027. The IMF considers the new inflation target a major policy achievement, while highlighting that South Africa’s exit from the grey list marks an important milestone.
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IMF also noted SA coming off grey list and upgraded S&P credit rating
The IMF noted that the recent delisting, coupled with the government’s commitment to debt stabilisation, led to an upgrade of South Africa’s credit rating by S&P. Meanwhile, Moody’s decided not to issue a credit rating action for South Africa, although one had been scheduled.
On the fiscal front, the IMF assumes that government revenue will be somewhat less buoyant and public spending will decline more gradually than the Treasury’s forecast. Consequently, the IMF expects the primary budget surplus to widen at a slower pace, which will be insufficient to stabilise public debt over the medium term.
The IMF noted that a primary surplus equal to 3.0% of GDP would be required to reduce government debt levels to 70% of GDP by 2033, according to the official forecast.
Van der Linde points out that despite lower borrowing costs this year, debt-servicing pressures are unlikely to ease in the near term. “Treasury’s revised forecasts suggest that government debt will stabilise at 77.9% of GDP by 2025/26.
“However, our models indicate that debt levels may breach 80% of GDP by late-2027/28, highlighting ongoing fiscal challenges. We expect debt-servicing costs to increase by an average of nearly 7% per year over the medium term, compared to an average of 12.8% over the past decade.”
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IMF provided fair assessment of SA’s macroeconomic environment
Van der Linde says the IMF provided a fair assessment of South Africa’s macroeconomic environment. “Its predictions broadly align with ours. Despite uncertainty around political governance, US tariffs and strained US relations, the country demonstrated notable economic resilience this year.
“While structural reforms progressed under Operation Vulindlela, the pace is still too slow to support the economy’s need for sustainable growth and employment. Perceptions of private-sector participation improved and ongoing progress could see fixed investment picking up from next year, as it remains subdued.”
Van der Linde says, 2026 will present unique challenges as the Government of National Unity faces local government elections in late 2026, likely in November.
“The 2026 Budget, scheduled for February, could set the tone for the remainder of the year. The first hurdle will be the budget itself, with political parties likely seeking to avoid a repeat of the 2025 Budget debacle.”
