Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation with South Africa.

South Africa’s post-pandemic recovery has been hampered by repeated 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.  

Economic activity picked up in 2025, with growth estimated at 1.3 percent, supported by robust private consumption. Inflation moderated to an average of 3.2 percent, enabling a shift to a lower 3 percent inflation target. The current account remained stable despite higher US tariffs and global policy uncertainty, and the banking sector remains sound. Public debt, however, has risen further, reaching 77 percent of GDP at end‑March 2025.

Growth is projected to accelerate to 1.4 percent in 2026, reaching 1.8 percent in the medium term, supported by resilient consumption and investment driven by structural reforms. Inflation is projected to reach the 3 percent target by end‑2027. Although fiscal deficits are moderating, they remain elevated, and public debt is therefore projected to continue rising over the medium term. Risks are tilted to the downside, mainly stemming from global fragmentation, trade tensions, and domestic reform fatigue, while upside risks include faster reform implementation and stronger global growth.

Executive Board Assessment

Executive Directors commended the authorities for maintaining macroeconomic stability and strengthening economic resilience amid a challenging global environment, but noted downside risks and entrenched structural impediments that constrain potential growth and employment. Against this background, they emphasized 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.

Directors welcomed the authorities’ commitment to strengthening fiscal sustainability and emphasized the need for credible, growth-friendly, and socially acceptable fiscal consolidation to stabilize and reduce public debt while protecting priority spending. They considered that consolidation efforts should focus on reprioritizing and improving the efficiency and equity of public spending, while protecting vulnerable groups, along with continued efforts to mobilize domestic revenues. They noted that a fiscal rule anchored in a prudent debt ceiling could help underpin the adjustment and bolster credibility.

Directors commended the South African Reserve Bank for reducing inflation and welcomed the move to a lower (3 percent) inflation target with a narrower band, which should support macroeconomic stability and reduce borrowing costs. They recommended maintaining a flexible and data-driven approach focused on guiding inflation expectations to the new target. Directors considered that careful communication and gradual implementation of the new target are key to maintaining credibility, while preserving flexibility in case of shocks.

Directors welcomed the authorities’ efforts to safeguard financial stability, including bank‑resolution and safety‑net reforms and steps to bolster the AML/CFT framework that have enabled South Africa’s exit from the FATF “grey list.” They encouraged the authorities to continue to monitor risks related to NPLs and the sovereign–financial sector nexus, while strengthening supervision of banks and non‑bank financial institutions. Directors underscored the importance of improving access to finance, including SMEs, while bolstering
payment-system efficiency.

Directors welcomed ongoing electricity and logistics reforms aimed at removing critical impediments to growth through higher private‑sector participation and encouraged their resolute implementation. They supported additional reforms to improve the business environment, strengthen governance, combat corruption, improve the flexibility of the labor market, address spatial disparities, and deepen trade diversification.

Source: IMF