IMF: SA must improve operations, finances and governance of Eskom and Transnet

The government recognises the need to address deep-rooted socioeconomic challenges, including unemployment, inequality and poverty, while stabilising its debt, National Treasury said in response to an International Monetary Fund (IMF) assessment of the country’s economy.

From 26 May to 6 June, IMF staff held meetings in South Africa as part of its routine economic surveillance function, as prescribed in its articles of agreement. The visit did not result in a board discussion, nor publication of a report.

In its findings, the IMF was of the view SA’s economic recovery from the Covid pandemic should continue as some sectors, such as tourism, hospitality and construction, gradually improved. The country was benefitting from favourable commodity prices, which had raised exports.

Nonetheless, the IMF pointed to various shocks that continued to affect the country’s economic outlook. These included the KwaZulu-Natal floods, uncertainty arising from the conflict in Ukraine, tightening of global financial conditions and lower economic growth in China.

“The IMF staff acknowledges progress made in implementing structural reforms and encouraged South Africa to deepen and speed up implementation of structural reforms to address a number of obstacles,” Treasury said in a statement.

Areas needing urgent attention included growth, load shedding, and deficiencies in the transportation system, which limited the benefits from higher commodity prices. Other key reform areas highlighted included improving procurement processes, transforming network industries, fostering competition to attract private investment and advancing the functioning of the labour market.

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In addition, IMF staff underscored that operations, finances and governance of Eskom and Transnet should be improved to contribute to the sustainability of public finances.

“The staff emphasised the need to implement growth-friendly fiscal consolidation to ensure the country’s debt as a percentage of [gross domestic product] is on a declining, sustainable path.

“Containment of compensation costs and streamlining transfers to SOEs [state-owned entities] were some of the recommendations tabled.

“In addition, the staff underscored that operations, finances and governance of Eskom and Transnet should be improved to contribute to the sustainability of public finances,” Treasury said.

Government’s commitment to restoring sustainability to public finances was supported by better-than-expected revenue collection, albeit temporary, and fiscal restraint, it responded.

“As stated in the 2022 budget, government is using a portion of the additional revenue to reduce the fiscal deficit and stabilise debt, with the majority targeted to address urgent social needs, promote job creation through the presidential employment initiative and support the public health sector,” it said.

There was faster implementation of economic and SOE reforms, accompanied by fiscal consolidation to provide a stable foundation for growth, easing of investor concerns and support a faster recovery and higher levels of economic growth. It acknowledged SA’s economic recovery had been “uneven” and that “risks remain high”.

In general, it said, the IMF’s concerns were aligned with government’s response programme. The Presidential State-Owned Enterprises Council was considering their value add and which SOEs would be rationalised or consolidated.

“Any solution [on Eskom] will be contingent on continued progress to reform SA’s electricity sector and Eskom’s own progress on its turnaround plan and its restructuring,” it said.

– SAnews.gov.za