South Africa’s economy has shown resilience in the face of global turbulence but remains weighed down by structural constraints, weak infrastructure and rising public debt, the International Monetary Fund said, urging more ambitious reforms to unlock growth and stabilise the fiscus.
An IMF team led by Delia Velculescu visited South Africa from December 1–8 for the Fund’s annual Article IV consultation, holding talks with economic authorities, private-sector representatives and civil-society groups.
The consultations focused on policies needed to secure macroeconomic stability, reduce poverty and inequality, and raise the country’s long-term growth trajectory which the IMF says remains well below potential.
Resilient but constrained economy
The Fund said South Africa had weathered renewed global volatility this year despite the drag from higher tariffs, protectionism and policy uncertainty. The IMF attributed this resilience to the country’s diversified mineral base, independent institutions, credible inflation-targeting regime and deep domestic financial markets.
Recent developments including South Africa’s exit from the FATF grey list, an upgrade in its sovereign credit rating, and a stronger anti-corruption framework had lifted market sentiment, the mission said.
But the Fund warned that long-standing bottlenecks, including rigid labour and product markets, inadequate infrastructure, governance weaknesses, and high public debt, continued to hold back growth and jobs.
Growth is forecast to reach 1.3 percent in 2025 and 1.4 percent in 2026, supported largely by private consumption. The IMF expects growth to rise gradually to around 1.8 percent by 2030 as electricity and logistics reforms take hold.
Inflation is projected to average 3.3 percent next year after South Africa adopted a lower inflation target of 3 percent, with a 1-point tolerance band. The IMF said this shift represented a “major policy achievement.”
Risks tilted to the downside
The IMF cautioned that risks to the outlook were predominantly negative. A slowdown in global activity amid higher geopolitical tensions, new trade barriers or prolonged policy uncertainty could weigh on export receipts and commodity prices.
A sharp correction in global markets could trigger capital outflows, exchange-rate volatility and higher borrowing costs. Domestically, the Fund warned that the cost of bringing inflation down could temporarily weaken activity, while slow reform implementation would constrain medium-term growth.
On the upside, faster domestic reforms and an easing of global trade tensions could boost confidence and investment.
Fiscal consolidation “essential”
The Fund welcomed the government’s commitment to stabilise debt, reaffirmed in the November Medium-Term Budget Policy Statement. Authorities aim to deliver a primary surplus of 1.5 percent of GDP in FY26 and 2.3 percent by FY28.
However, IMF staff estimate that under current policies, revenues will be lower and spending reductions slower than government projections, making debt stabilisation unlikely without additional measures.
The mission called for a “credible, growth-friendly and socially feasible” fiscal adjustment that protects critical spending while reducing deficits. It recommended improving procurement efficiency, rationalising the wage bill, cutting transfers to state-owned enterprises unless reforms progress, and streamlining poorly performing programmes.
On revenue, the IMF said options included reducing tax expenditures benefiting high-income earners, raising carbon taxes, and increasing gambling levies. With tax revenues already high by international standards, room for broad increases is limited, it said.
The Fund also backed a numerical fiscal rule anchored in a prudent debt ceiling to strengthen policy credibility.
Monetary and financial stability
The IMF said monetary policy should remain data-driven as the South African Reserve Bank guides inflation toward the new target. It described the country’s financial sector as sound but increasingly exposed to sovereign risk due to rising public debt.
Authorities have strengthened crisis-management tools, including bank-resolution frameworks and depositor protection. But the IMF urged continued vigilance and stronger oversight of both banks and non-bank financial institutions.
Reform push needed to unlock growth
The Fund said South Africa’s state-led development model had reached its limits, with private-sector participation now vital for job creation and productivity gains.
It urged the government to accelerate electricity and logistics reforms, including unbundling Eskom, creating a competitive wholesale power market, modernising the transmission grid and improving municipal operating models. In logistics, the IMF called for clearer rail and port concession rules and an independent transport regulator.
It also recommended deeper reforms to cut red tape, improve competition policy, strengthen anti-corruption institutions, and overhaul labour-market frameworks to reduce hiring costs and tackle spatial inequality.
If implemented, the IMF said such reforms could lift medium-term growth to around 3 percent — double current projections.
