The International Monetary Fund (IMF) expects South Africa’s yearly economic growth rate to reach 1.8% by 2030, supported in large part by ongoing electricity and logistics reforms.

In the outcome of its Article IV Consultation with South Africa, which was held from November 11 to 25, 2024, the IMF has forecast that real GDP output growth will accelerate from an estimated 0.8% in 2024 to 1.5% this year on the back of improved electricity generation, monetary policy easing and a return of investor and consumer confidence post the national election.

As part of the Article IV surveillance function, as prescribed in the IMF’s Articles of Agreement, the IMF is required to conduct consultations with each member country to perform economic and financial assessments.

The IMF staff held virtual meetings with the South African government, the South African Reserve Bank (SARB), Eskom, private businesses, organised labour and academia. The outcome of these consultations has been summarised in an Article IV Staff Report, which was considered by the IMF executive board and published on January 27.

The report states that the outlook remains marked by high uncertainty, with the balance of risks tilted to the downside. Key downside external risks relate to a fragmentation and intensification of protectionist policies, an escalation of ongoing conflicts, a deeper slowdown in main trading partners or slower global disinflation and tightening financial conditions.

Domestically, resistance to and delays in the implementation of needed reforms could add to downside risks.

On the upside, faster and more ambitious reform implementation by the new government, or stronger global growth, could boost confidence and growth.

With fiscal deficits moderating but still elevated over the medium term, the IMF report projects public debt to continue rising under its baseline scenario, recommending a more ambitious-than-envisaged fiscal consolidation.

According to the report, inflation is projected to average 4% this year and stabilise at the midpoint of the SARB’s target range of 4.5% in the medium run. The IMF recommends that the central bank continue to manage the normalisation of the policy rate toward the neutral level in a flexible and data-driven manner.

The IMF report argues that transitioning from a target band to a lower point target with a well-calibrated tolerance band at an appropriate time can help strengthen macroeconomic stability.

The IMF welcomes the ongoing banking resolution and safety-net reforms, together with macroprudential measures to bolster capital buffers.

The IMF report also commends ongoing electricity and logistics reforms aimed at alleviating critical supply constraints and called for the ambitious implementation of these reforms.

In addition, the fund indicates that meeting South Africa’s climate goals requires further efforts to increase effective carbon taxation and accelerate the rollout of renewable energy.

In a statement on January 31, the National Treasury said the IMF’s concerns were aligned with the South African government’s response to addressing immediate and long-term economic challenges.

It agreed that South Africa’s economic growth prospects were poised to recover this year, following the lacklustre economic performance in 2023 and 2024, as household consumption gradually increased, supported by rising purchasing power, employment recovery and wealth gains.

Treasury stated in its 2024 Medium Term Budget Policy Statement, released in October last year, that it had estimated growth to increase from 1.1% in 2024 to 1.7% this year. It also noted that risks to the domestic outlook were more balanced than at the time of the Budget Review in February 2024.

In terms of fiscal policy, Treasury reasserted that South Africa was committed to fiscal consolidation and to setting debt on a sustainable path.

It pointed to the first primary surplus in 15 years being recorded in 2023/24, adding that an overall main budget deficit of 4.7% of GDP was expected for the current fiscal year. This was projected to decline to 4.3% in 2025/26.

Meanwhile, debt as a percentage of GDP is expected to stabilise in the 2025/26 financial year, with debt-service costs as a percentage of revenue also peaking at the same time.

Treasury also noted several crucial reforms currently under way. The current focus of South Africa’s reform agenda included stabilising the electricity grid, enhancing the efficacy of freight and port operations, implementing e-visas and prioritising the advancement of targeted industries to enhance the business climate and promote equitable growth.

“Nearly 94% of the reforms aimed for implementation by 2024 have been accomplished or are significantly progressing. Following its successful first phase, Operation Vulindlela will be going into its second phase with new initiatives aimed at reversing local government decline, tackling spatial inequality, and advancing a digital government to improve service delivery,” Treasury said.

It stated that these initiatives enhanced the key focus areas of the first phase, such as reducing power cuts, improving the performance of the logistics system, lowering data costs, improving water supply and enabling the country to attract critical skills.

Treasury also noted that the SARB performed its first stress test of South Africa's key insurance firms during the 2023/24 cycle, in which climate-related risks were prominent. It stated that ongoing efforts to exit the Financial Action Task Force grey list during 2025 were well under way, with 16 out of 22 action items having been addressed.

“The National Treasury is committed to implementing reforms that will enhance inclusive economic growth, achieve a sustainable public debt level, further repair and strengthen network industries, and strengthen state capacity to support economic activity,” the department said.