The International Monetary Fund (IMF) has welcomed South Africa’s renewed drive to invest in public infrastructure, but says a “rigorous but prompt” assessment of key projects is needed to ensure they are properly prioritised to maximise long-term benefits.

South Africa is pursuing a R845-billion programme to upgrade and expand power, transport, telecoms and water networks between 2012 and 2015.

In its latest Staff Report for the 2012 Article IV consultation with South Africa, the IMF also argued that, to help to contain fiscal risks, options needed to be explored to involve the private sector in network industries dominated by State-owned enterprises. Tariffs and user fees should also reflect service and investment costs.

Emphasis should be given to building implementation capacity, a dearth of which had led to lower-than-expected capital spending by the public sector in previous years.

The IMF argued it was urgent to rebalance the composition of public spending away from wages – currently the single largest component of government expenditure at around 40% – to provide greater room for capital spending.

Compared with its emerging market peers, South Africa’s wage bill was a large per cent of gross domestic product. The IMF noted that, at nearly 15%, it was well above that of Chile, which stood at around 5%, as well as Thailand, Turkey, Russia and Israel. Compensation of South African government employees also accounted for about a third of the formal sector wage bill.

The 72-page document, which lowered the country’s 2012 growth outlook to 2.6%, says the proposed enhancement of key infrastructure would help remove existing supply-side bottlenecks that have constrained exports and domestic economic activity in recent years.

“The resulting bottlenecks in electricity generation, transport, and port infrastructure means South Africa has not benefited as much as other resource-intensive emerging market economies from its large terms of trade gains of the last decade. This in turn has discouraged investment in South Africa’s natural resource industry, and some key exports have seen substantial volume declines despite high commodity prices.”

In the context of a range of external growth risks, the IMF said it was justifiable for South Africa to extend its stimulus for longer than initially envisaged, by delaying the pace of fiscal consolidation.