Recent domestic developments have been encouraging, gradually bolstering investor confidence. This positive momentum appears to be more than a one-off occurrence, as evidenced by the SARB’s leading indicator data released yesterday. The index rose to a March 2023 high of 113.9 in September, recording year-on-year growth for a sixth consecutive month. Four of the eight available component time series contributed to the rise in the indicator. An acceleration in M1 money supply growth (a proxy for credit demand) and a rise in the number of building plans approved were the largest contributors to the rise in the index and were likely influenced by the SARB beginning its rate-cutting cycle in September. The leading indicator remains in a broad uptrend since it bottomed out in mid-2023. GNU-led optimism, a stronger ZAR, the continued absence of load-shedding, and weaker inflationary pressures have contributed to improved economic conditions. However, these factors need to be backed by improved policymaking and reforms that promote growth by dealing with structural headwinds that have been a drag on economic activity.
One such structural headwind is SA’s fiscal weakness, which is deterring investment into the economy. On that front, it is worth noting that the IMF said yesterday that SA needs fiscal consolidation that’s “more ambitious than envisaged” to place public debt on a sustainable trajectory. It recommends an annual consolidation effort of 1% of GDP over three years to achieve a primary surplus sufficient to lower debt to 60-70% of GDP within 5-10 years. Accordingly, financing additional public investments or social programmes may require measures like improved tax administration, broader tax bases, or new taxes. Moreover, the IMF said that a fiscal rule tied to a prudent debt ceiling could enhance policy credibility, reduce debt-service costs, and free resources for critical spending. The Fund also highlighted downside risks, including global economic fragmentation, slower growth in key trading partners like China, and domestic resistance to reforms, which could erode confidence and hinder growth.