S.Africa: International Monetary Fund’s dire Eskom warning

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The International Monetary Fund (IMF) has warned that South Africa’s electricity crisis poses a significant threat to the country’s fiscal health. It also said Eskom must reduce its reliance on government funding.

This was said at the IMF’s Spring Meetings with the World Bank in April this year.

As part of these meetings, at the 2023 Fiscal Monitor Press Briefing, Paulo Medas, deputy director of the IMF’s fiscal affairs department, said South Africa’s electricity crisis and Eskom affects the country’s fiscal health in two ways.

The first effect is indirect, as they impact economic growth and tax revenues. This undermines the country’s fiscal accounts.

In March, the IMF lowered its 2023 economic growth projection for South Africa to a paltry 0.1% — a 1.1% downward revision.

The IMF followed a host of organisations that have also taken a more bearish view of the country’s growth prospects, including rating agency Fitch, the South African Reserve Bank (SARB), and Absa Bank.

“[This downward revision] mainly reflects the much more severe than expected outages in the energy sector, especially in the last quarter of 2022,” said Daniel Leigh, who heads the World Economic Studies division in the IMF’s research department.

The second effect is direct, as Eskom requires government support, reflecting the IMF’s projections for South Africa’s debt numbers.

Medas’ warning joins those of other economists and government officials that have warned that South Africa’s rising debt is increasingly concerning without strong economic growth.

The country’s debt burden has risen steadily over the last decade but is set to increase even further following the government’s R254 billion Eskom debt bailout.

South Africa’s debt is expected to rise from R4.73 trillion in the current financial year to R5.84 trillion in the 2025/26 financial year.

“So, the solution has to be to, obviously, address structurally the problems in the sector which will contribute to higher growth and reduce the need for future government support,” said Medas.

However, the IMF does not project these trends to continue.

It expects more energy to become available in the country next year, setting growth expectations for 2024 at 1.8%.

“More renewable power, in particular, should be connected [in 2024],” said Leigh.

It also expects inflation in the country to come down in 2023 and even reach the SARB’s target range of 3% to 6% this year.

“We did welcome the recent increase in interest rates,” said Leigh, referring to the 50 basis point hike announced by the SARB governor in March.

Source: https://mybroadband.co.za/news/investing/489463-international-monetary-funds-dire-eskom-warning.html

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