Finance Minister Enoch Godongwana. (GCIS)
The International Monetary Fund expects Finance Minister Enoch Godongwana to maintain a primary budget surplus target of 1.5% of GDP, its mission chief for South Africa Delia Velculescu said.
“What we would hope and expect from it is to see adherence to the primary surplus target that was announced in the medium-term budget statement, so the 1.5% of GDP primary surplus, we hope that will be maintained,” Velculescu told the Mail & Guardian.
“And, importantly, we hope the budget will specify the reforms needed to get there.”
She said controlling the public sector wage bill would be critical and commended government’s plans to address inefficiencies and provide incentives for early retirement.
The IMF will also be looking for reforms to improve procurement efficiency and transparency, as well as continued close oversight of state-owned enterprises and measures to boost administrative efficiency, including cutting redundant and inefficient programmes.
“We know the authorities have undertaken a number of spending reviews in these areas and what we expect to see in the budget is the outcome of those reviews and the policies and reforms that will achieve those savings,” Velculescu said.
The IMF executive board concluded its 2025 Article IV consultation with South Africa in early February, noting that the economy had proven resilient to renewed global turbulence linked to greater protectionism, fragmentation and heightened policy uncertainty.
“Our recent mission has found that South Africa’s economy has been resilient despite renewed global turbulence last year. Indeed, growth rebounded, the Rand appreciated, the stock market increased and bond yields declined,” Velculescu said, attributed these positive developments to strong institutions, a credible monetary framework and a flexible exchange rate.
She said the move to a lower 3% inflation target, the country’s exit from the Financial Action Task Force greylist and infrastructure reforms under Operation Vulindlela were important domestic achievements.
“In this context, we have revised up our growth projection in the near term and expect growth to reach around 1.3% in 2025 and 1.4% this year and gradually rise to 1.8% in the medium run,” she said.
Continued resilience in domestic consumption would support growth alongside declining inflation and interest rates, while ongoing structural reforms would have a positive impact, she said, adding: “However, we do see risks on the horizon and those are tilted on the downside related to an intensification of fragmentation and protectionism in the global economy as well as tighter global financial conditions.”
A slowdown in domestic reforms would pose additional risks to growth. The IMF’s policy recommendations focus on reforms needed to support macroeconomic stability and resilience against external shocks while pivoting towards higher and more inclusive growth.
“The authorities’ objective to reduce public debt in the near term and reduce it to around 70% in the longer term is appropriate and necessary to rebuild buffers and maintain macroeconomic stability and resilience,” Velculescu said.
She emphasised that the 2026 budget must deliver on the 1.5% primary surplus target by clearly specifying and fully implementing the reforms required to achieve it.
The IMF said the 3% inflation target should bring greater stability and lower borrowing costs for households, firms and the government.
“The central bank should continue basing its decisions on economic data while communicating clearly to help guide inflation expectations towards a new target,” Velculescu said.
Growth-enhancing structural reforms were essential to strengthening resilience, raising South Africa’s potential growth rate, reducing high unemployment and supporting fiscal sustainability.
“And here the authorities have already made notable progress in electricity, logistics and water reforms under Operation Vulindlela, including by opening up electricity and logistics to private sector participation and competition,” she said.
The IMF is recommending that South Africa implement an ambitious package of reforms to reduce regulatory barriers to business, address governance weaknesses and advance labour market reforms to unlock jobs and growth.
