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Explainers - Finance - Profiles - November 26, 2019

South Africa Risks Economy Downturn – IMF

The International Monetary Fund (IMF) has warned that South Africa risks economic downturn unless it swiftly implements reforms that will materialise rapidly.

This is coming on heels from economic assessment agencies in expressing fears about the country’s overall financial growths.

The world financial body explained that if the government does not act fast to implement reforms, South Africa faces a prolonged period of weak economic growth due to rising unemployment, inequality and greater credit-rating risk.

The African country popularly referred to as Africa’s most industrialised economy in the continent has seen government borrowing increasing swiftly and slow economic growth to trickles over the last decade as fund bailouts of state firms are being plagued by mismanagement.

Meanwhile, the IMF had cut its 2019 Gross Domestic Production (GDP) forecast for the country from 1.2%. to 0.5%. Then, on Monday, November 26, the economic body said that South Africa’s growth would remain passive in 2020 and beyond if the government followed its present policies.

“The FY20/21 budget to be presented in February should articulate measures to address fiscal and SOE (state-owned entities) challenges and stabilize government debt,” the global lender said in a statement at the conclusion of a two-week, “Article IV” assessment visit to the country.

“Failure to implement the needed adjustment in government and SOE spending and efficiency will worsen debt dynamics, erode financial stability, and further raise the country risk premium.”

Although President Cyril Ramaphosa had promised to stimulate economic growth by reforming, easing policy log-jams, winning back foreign investors, and reviving cash-guzzling state firms – particularly power utility Eskom which is heavily reliant on the government funds to stay buoyant,

However, since taking over in 2018, his plans have failed to pull through. Just last week, Ramphosa appointed a new Chief Executive for Eskom and pledged that in the next two fiscal years, it will fund the company with over 100 billion rands ($6.8 billion) in form of bailouts.

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