JOHANNESBURG, Oct 28 – The International Monetary Fund (IMF) has urged South Africa to accelerate structural reforms and increase investment, saying improvements in fiscal credibility have strengthened the country’s economic position but have yet to translate into sufficiently strong growth.
Tidiane Kinda, the IMF’s resident representative to South Africa, said the continent’s largest economy had demonstrated resilience in the face of an energy shock linked to the Iran war. However, weak investment remained a major constraint on economic expansion.
“There is a bit of a wait-and-see sort of attitude,” toward infrastructure spending, Kinda said in an interview at Bloomberg’s Johannesburg offices on Tuesday. “Increasing public investment would help support growth.”
The comments come after Finance Minister Enoch Godongwana presented a midterm budget outlook last week showing that public debt had peaked in the 2025-26 fiscal year and was expected to decline over the following years, supported by stronger-than-expected revenue collection and moderate spending growth.
Kinda said the budget update reaffirmed the government’s commitment to fiscal prudence and debt stabilisation. He also welcomed the National Treasury’s proposed fiscal anchor, designed to strengthen spending discipline and keep public debt on a sustainable trajectory.
Fiscal credibility improves, but growth remains weak
South Africa’s progress on fiscal management marks a shift after years of rising debt associated with the administration of former President Jacob Zuma, which was marred by corruption scandals.
Improved confidence in fiscal policy, alongside the South African Reserve Bank’s decision in 2025 to lower its inflation target to 3%, has helped reduce the country’s risk premium. A lower risk premium reduces the additional return investors demand to hold a country’s debt, potentially easing financing conditions for the government and private sector.
Despite these improvements, the IMF expects South Africa’s economy to grow by just 1% in 2026, 0.2 percentage point below the Treasury’s projection. The Fund forecasts medium-term growth of 1.8%.
Kinda said South Africa would need to move towards growth of as much as 4% to generate a stronger expansion, requiring faster implementation of reforms that encourage private investment in electricity generation and logistics.
Accelerating these reforms could raise economic growth by an additional 1.8 percentage points within the next two years, according to the estimates cited by Kinda.
“Reform is progressing, but very gradually,” he said. “It’s taking time.”
Power, logistics and governance reforms
The IMF has identified electricity generation and logistics as priority areas for reform because constraints in these sectors affect production, trade and business investment.
Greater private-sector participation in power generation could help expand electricity supply, while improvements in transport and logistics could reduce operational bottlenecks for companies and exporters.
The Fund also sees opportunities to raise growth through stronger governance and more effective public procurement. Kinda said reforms aimed at reducing corruption could add another 1.2 to 1.4 percentage points to growth, while improvements to the business environment could contribute an additional 0.5 percentage point.
These estimates illustrate the potential economic gains from addressing structural constraints, although achieving them would depend on the implementation, timing and effectiveness of the reforms.
For investors, the central issue is whether policy commitments translate into practical changes that reduce operating risks, improve infrastructure and create more predictable conditions for long-term capital investment.
IMF and Treasury differ on debt outlook
Despite acknowledging the government’s fiscal progress, the IMF maintains a more conservative assessment of South Africa’s debt trajectory than the National Treasury.
The Fund projects public debt stabilising at around 80% of gross domestic product over the next five years. The Treasury, by contrast, forecasts that debt has already peaked at 78.4% of GDP and will decline to 77.5% in the 2028-29 fiscal year.
The difference reflects contrasting assessments of the pace and durability of fiscal improvement, with the IMF emphasising the need for continued consolidation to bring debt to more prudent levels.
However, reducing borrowing while economic growth remains weak presents a policy challenge. Tighter fiscal policy can improve debt dynamics, but excessive restraint may also limit public investment and weigh on economic activity.
“Fiscal consolidation is needed to reduce debt to more prudent levels but doing it in an environment of relatively weak growth is quite a challenge,” Kinda said.
South Africa’s economic outlook will therefore depend not only on maintaining fiscal discipline but also on improving the conditions for private investment and implementing reforms capable of lifting productivity and growth. The IMF’s assessment suggests that stronger public finances have created a more credible foundation, but faster structural change remains necessary to convert that progress into a sustained economic recovery.
