IMF says perceptions of weakening governance to weigh on South African growth

A worker walks away from a construction site in Sandton outside Johannesburg

JOHANNESBURG (Reuters) – Global and domestic factors, including perceptions of weakening governance and uncertainty about policy direction, are likely to weigh on South Africa’s economic growth next year, the International Monetary Fund said on Tuesday.

Investors are worried about whether the government can implement policies to boost flagging growth amid a probe into Finance Minister Pravin Gordhan for his role in setting up a unit at the tax department that police say illegally spied on politicians. Gordhan has denied any wrongdoing.

In October, state prosecutors dropped fraud charges against Gordhan, in a case that had rocked financial markets and drawn accusations of political meddling.

For his part, President Jacob Zuma has been accused of involvement in several corruption scandals. The anti-graft watchdog this month asked for a judge to investigate alleged influence-peddling by a wealthy family with close ties to Zuma, who denies any wrongdoing.

“Despite the strength of South Africa‚Äôs institutions, perceptions of weakening governance and of rising uncertainty regarding the direction of policies have been associated with low investment and consumer confidence,” the IMF said on Tuesday after a visit from members of its staff.

The global lender cut its 2016 growth forecast for Africa’s most industrialized economy to 0.1 percent from 0.6 percent earlier this year, and a senior fund official separately said corruption was hampering the reforms needed to boost growth.

The Treasury has cut its own economic growth forecast for this year to 0.5 percent from 0.9 percent.

“Should the slowdown be prolonged, the state of the public finances would face greater risks from declining investor confidence,” the IMF said.

However, it added that improved electricity supply would help the economy, and noted that wage agreements had been reached with only limited strike action.

(Reporting by Stella Mapenzauswa; Editing by Kevin Liffey)