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IMF asks South Africa to reform state owned firms to ‘reignite growth and job creation’

By on January 27, 2021 0 136 Views

By Oludare Mayowa

The International Monetary Fund (IMF) has asked South Africa’s government to advance reforms that address Eskom and other State Owned Enterprises’ (SOE) difficulties in a bid to reignite growth and job creation.

In a statement after its Virtual Staff Visit to South Africa, the IMF on Wednesday said the country should strengthen competition and governance, and increase labor market flexibility.
According to the IMF, “Reining in large fiscal deficits and debt will require containing the wage bill and avoiding ill-targeted subsidies and transfers to inefficient state-owned enterprises (SOEs).”

The Fund said special attention should be given to improving the efficiency of SOEs and the quality of their services by hardening their budget constraints and undertaking well-defined strategic equity partnerships, particularly in the energy sector.

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IMF noted that recurring power outages in the midst of a deep recession underscore the need for bold action to redefine Eskom’s business model so that it becomes self-sustaining.

“In the absence of fundamental reforms, Eskom’s problems will continue to weigh on public finances and constrain economic growth prospects,” the IMF said in the statement.

It said that Facilitating private-sector participation in all sectors will reduce the vulnerabilities and inefficiencies from relying on a few large players.

“This will require sustained efforts to promote a business-friendly and competitive environment; accelerate governance reforms; and inject firm-level flexibility into collective bargaining while simplifying employment protection legislation.

The IMF said “Fiscal consolidation needs to be accompanied by a decisive reform package that removes constraints to growth and job creation.

“Attracting investment and promoting competition to modernize network industries is a key component of this package,” the Fund said.

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