The International Monetary Fund (IMF) has warned the South African government that, despite its post-COVID recovery, public debt is still running too hot, and lagging policy reforms are holding the country back.
However, if the country can accelerate reforms and improve public spending, the picture will be much brighter.
The warning from the global financier comes after the board completed an Article IV Consultation with the country ahead of the 2026 Budget.
The group noted that South Africa’s post-pandemic recovery has seen economic activity pick up, particularly in 2025, with GDP growth estimated at 1.3%, inflation moderating at an average of 3.2%, and the country pursuing a lower 3% target.
However, the recovery has also been hampered by global shocks and domestic challenges, including, more recently, increased protectionism, fragmentation, and global trade policy uncertainty.
“Owing to its ample natural endowments, independent institutions, and strong monetary policy framework, the economy has proven resilient thus far,” the group said.
“The current account remained stable despite higher US tariffs and global policy uncertainty, and the banking sector remains sound.”
Economic prospects for 2026 are looking better, with GDP growth expected at 1.4% in 2026 and rising to 1.8% over the medium term.
Unfortunately, public debt remains a problem, having risen to 77% of GDP at the end of March 2025, and the IMF expects it to keep rising—contrary to the National Treasury’s ambitions to rein it in.
“Although fiscal deficits are moderating, they remain elevated, and public debt is therefore projected to continue rising over the medium term,” the IMF said.
“Risks are tilted to the downside, mainly stemming from global fragmentation, trade tensions, and domestic reform fatigue.”
The slow pace of reforms has entrenched structural impediments that constrain potential growth and employment, it added.
To turn the picture around, South Africa will have to implement reforms a lot faster, while hoping for stronger global growth.
The IMF emphasised the need for well-coordinated policies and reforms to safeguard fiscal sustainability, secure low and stable inflation, ensure financial stability, and achieve higher and inclusive growth.
“(South Africa needs) credible, growth-friendly, and socially acceptable fiscal consolidation to stabilise and reduce public debt while protecting priority spending,” it said.
The group said consolidation efforts should focus on reprioritising and improving the efficiency and equity of public spending, while protecting vulnerable groups, along with continued efforts to mobilise domestic revenues.
Crucially, the IMF said that a fiscal rule anchored in a prudent debt ceiling could help underpin the adjustment and bolster credibility.
On the positive side, the IMF welcomed the South African Reserve Bank’s new 3% inflation target, reforms to the anti-money-laundering and terrorism-financing framework, and the stabilisation of the electricity grid.
However, it stressed that all these improvements need to be carefully navigated and maintained to keep turning the ship around. – BusinessTech
