- South Africa’s post pandemic economic recovery is fragile and below 2% growth as estimated by the IMF.
- But the efforts of the government to meet the insurmountable pandemic in the nation has been appreciated by the report.
The IMF has estimated the economic growth of South Africa would be below 2%. An IMF statement issued at the end of discussions with South Africa, the IMF said the country’s recovery from the COVID-19 pandemic had been faster than expected, but its durability remains uncertain. Economic growth is projected at 1.9% in 2022 after an estimated 4.6% rebound in 2021, but it is seen easing to 1.4% in the medium term. Though during the pandemic period, the government’s efforts were very effective in dealing with the lock downs and all, the demand slow down and sharp fall in manufacturing is attributed to this fragile economic health. The budget which would be unveiled on Feb. 23 provides an opportunity for concrete measures to contain public sector wages, rationalise bailouts of state companies, streamline tax expenditure and better target education subsidies.
South Africa’s subpar economic performance over the last decade has weakened its macroeconomic fundamentals and social indicators. In response to formidable COVID-19-related challenges, government expenditure surged, and, amid declining revenue, the budget deficit widened significantly. The South African Reserve Bank (SARB) and the Prudential Authority (PA) preserved adequate liquidity conditions and financial-sector stability. The cyclical recovery from the deep contraction has been faster than expected but its strength is unlikely to be sustained. Benign global market conditions have supported asset performance, although term premia are elevated due to fiscal risks. Bank soundness indicators remain solid
Streamlining the infrastructure sector particularly the power sector reforms, reduction of fiscal deficits, liberalising the financial sector would be key factors that can drive growth in future. The economy recovered strongly in 2021, following an unprecedented real output contraction in 2020. However, the outlook remains precarious amidst projected future low growth, high unemployment and adverse debt dynamics, and the recovery pace is unlikely to be sustained. Ample buffers allowed the financial system to handle the COVID-19 shock relatively well, but domestic and external downside risks remain substantial—with potential implications for asset quality, profitability, and solvency.
