The International Monetary Fund (IMF) has lamented the impact of the ongoing electricity crisis on the South African fiscus as the mining industry misses out on the windfall of the global commodity boom.
The IMF on Friday said that though its latest assessment of South Africa’s outlook was a little bit behind the curve, the problems with electricity production had severely hampered the country’s productive sectors.
This comes as Eskom suspended its rotational power cuts for the first time in a month since it started implementing various levels of loadshedding due to ongoing supply challenges to meet demand.
The struggling power utility has told businesses to brace for regular power cuts over the next 18 months at least, as it suggested a regular Stage 2 loadshedding regime, which the country can plan around.
IMF director for African Department Abebe Aemro Selassie said they viewed South Africa as a country that has been impacted quite a bit by global economic conditions and pressures on financial markets.
However, Selassie said this was compounded by more internal challenges the country was facing.
“And this is all a little bit unfortunate because with high commodity prices we are seeing globally, this would have been a moment where if South Africa was in a better position, it could have exploited and benefited quite a bit from this,” Selassie said.
South Africa has missed the train of the commodity cycle as the export commodity price basket has come down from earlier peaks and is now forecast to rise by 2.3% for the year, down from 3.2%.
As a result of these export and import developments, the current account balance is expected to register a surplus of 0.2% of gross domestic product this year before falling to a deficit of 1.0% in 2023.
In the 2021/22 financial year, mining contributed R127 billion to the fiscus out of total corporate income tax of R318bn.
The country recorded a current account surplus because of the high prices of iron ore, coal and rhodium, with mineral and petroleum royalties nearly doubling year-on-year to R28bn.
However, the demand for South African thermal coal has soared by 27% so far this year as European utilities replace Russian coal due to sanctions imposed by Western countries following the Ukraine invasion.
Selassie said that South Africa needed to strengthen the floundering supply-side of its economy as it was dragging down any growth potential.
“In terms of policy priorities, [South Africa] remains to make sure that the supply-side of the economy continues to be as robust and healthy as possible,” he said.
“The calibration of macroeconomic policies remains as sound as anywhere else.”
Meanwhile, the IMF downgraded its outlook for South African economic growth for 2022 to 2.1% from 2.3% previously forecast in July, and said the economy will slow to 1.1% in 2023.
This growth forecast is not far off from the SA Reserve Bank’s September forecast which was revised down from 2/0% to 1.9%, before slowing to 1.4% in 2023 and expanding to 1.7% in 2024.
However, the IMF said a robust recovery in services activity, amid lower Covid-19 cases, more than offset the adverse impacts of flooding, power cuts, and industrial strikes.
The IMF also warned that economic growth in sub-Saharan Africa will slow sharply by more than 1 percentage point, from 4.7 percent in 2021 to 3.6% in 2022, as global shocks impact the region still dealing with the pandemic.
It said that growth will remain subdued at 3.7% in 2023.
“High global inflation prompting a cost-of-living crisis, rising interest rate, volatile prices for key commodities, and the continuing impact of the pandemic are weighing on economic activity in sub-Saharan Africa,” it said.
“Rising food and energy prices are striking sub-Saharan Africa’s most vulnerable, and public debt and inflation are at levels unseen for decades. Many people and countries find themselves pushed closer to the edge.”
Against this backdrop, the IMF pointed to four priorities for policy makers in the region, including tackling food insecurity, consolidating public finances, containing inflation, and setting the stage for high-quality growth.
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