02 Aug

South Africa Should Consider Help From the IMF to Fix Its Economy

South African economy

The prognosis that the South African economy is in dire straits is pretty obvious even to the untrained eye. The solution to the country’s present predicament is also pretty much understood. The International Monetary Fund (IMF) has recently produced a comprehensive view which deserves to be considered.

The IMF identifies three key ailments as causes of the country’s anaemic economic growth. These are low consumer and investor confidence and policy uncertainty.

Continued slow growth should be a matter of grave concern and ought to be treated as an emergency.

Thus far the short and medium term outlook suggests that growth outcomes will continue to be pedestrian. What is even more worrying is that over the past four years global economic growth has gained momentum, suggesting that the solution to South Africa’s vanishing growth lies in the country.

The new minister of finance, Malusi Gigaba, recently hinted that South Africa may be compelled to seek assistance from the IMF. I think the conditions are right for serious consideration of the proposal even though IMF programmes are not very popular with politicians.

There are a number of reasons for this. Requests for IMF assistance suggest that those who manage the domestic economy have failed. The fund’s programmes also come with clearly defined milestones, often described as “conditionalities”. But in most instances, these are well-intentioned and aimed at success.

It’s better to enter an IMF programme early before the situation becomes frantic. As medical doctors might argue, it is easier to deal with an ailment in the earlier stages before it reaches an advanced stage.

Desperate situation

The alternative to asking for help now would be continued poor growth outcomes which would have serious social and economic costs.

The country’s poor economic growth record spawned a number of problems.

A shrinking economy means tax revenue shortfalls. The fiscal policy response would be higher taxes or bigger budget deficits.

And then again, interest payments, the fastest growing government expenditure item, would grow even faster. Already, about 11 cents out of every rand goes into servicing public debt.

As the economy shrinks, more and more income would have to be spent on interest payments. Government’s ability to provide a social safety net in the form of social grants and other services, like education and health care, would be much more constrained. The service delivery protests that have become increasingly the norm would become even more widespread as the fiscus comes under serious strain.

Ultimately, the brigade of the unemployed would bear the brunt. Of course, the employed would also suffer because slow growth affects incomes.

Low and anaemic growth dries out consumer confidence. Job losses and subdued growth in incomes as a result of poor growth outcomes and prospects chips away at consumer confidence.

South Africa’s growth performance post 2008 has been very low. Over the past 10 years, the economy recorded an average of 2% growth per year. If this continues it will take more than 30 years to double average incomes in South Africa.

But if the country can increase growth to 5% as projected by the National Development Plan, it would take only 14 years to double average income. The higher the growth rate the shorter the time required to double incomes and bring people out of poverty.

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[source from allAfrica]

20 Jul

IMF urges Mozambique to address debt audit concerns

Mozambique should take steps to address information gaps that remained regarding the use of loans granted to three state-owned companies, the International Monetary Fund said.

The IMF visited Mozambique from July 10-19 to discuss findings of an audit by risk-management firm Kroll into the country’s $2 billion in hidden loans to tuna fishing company EMATUM, security firm Proindicus and Mozambique Asset Management (MAM).

The audit showed roughly a quarter of the money remained unaccounted for.

“The team urged the government to take steps to fill the information gaps and to enhance its action plan to strengthen transparency, improve governance, and ensure accountability,” the fund said in a statement late on Wednesday.

[via Reuters Africa]

14 Jul

Egypt set to receive $1.25 bln IMF loan tranche: MENA

CAIRO (Reuters) – Egypt is to receive a second loan installment worth $1.25 billion from the International Monetary fund on Thursday night or Friday at the latest, state news agency MENA said.

Egypt agreed a three-year, $12 billion IMF loan programme in November that is tied to ambitious economic reforms such as subsidy cuts and tax hikes.

The IMF had said in May that there was a staff-level agreement to disburse the second instalment based on Egypt’s reform progress but that its executive board first had to meet to sign off on it.

[via Reuters Africa]

04 Jul

Egypt’s non-oil business activity contracts for 21st month in June: PMI

Egyptian non-oil private-sector business activity contracted for the 21st consecutive month in June as output and new orders continued to decline, a survey showed on Tuesday.

The Emirates NBD Egypt Purchasing Managers’ Index (PMI) for the non-oil private sector dipped to 47.2 points in June from 47.3 points the previous month, the report showed, remaining below the 50 mark that separates growth from contraction.

Egypt’s economy has been struggling since a 2011 uprising, but the government hopes recent reforms that are part of a $12 billion International Monetary Fund programme signed last year will help put the country on the right track.

Output continued to decline for the 21st month in a row, falling to 45.3 points in June from 46 points a month earlier as demand remained low. New orders also fell, but at a slower pace.

New export orders continued to rise for the third month in a row, the survey showed, suggesting demand has grown since the central bank’s decision to float the currency in November, as part of the IMF deal.

The value of Egypt’s pound has fallen by half since the flotation, helping Egyptian exports find new international markets.

Read more: Reuters Africa