By Olivia Kumwenda-Mtambo
JOHANNESBURG (Reuters) - The International Monetary Fund has raised South Africa's growth forecast for this year after recoveries in the agriculture and mining sectors, but perceptions of policy uncertainty pose a downside risk, a senior official said on Thursday.
The IMF expects Africa's most industrialized economy to grow by 1 percent this year, more than an earlier projection of 0.8 percent, the fund's senior resident representative in South Africa Montfort Mlachila said in an interview.
South Africa's Treasury expects growth of 1.3 percent this year, up from 0.3 percent in 2016.
"We have upgraded the growth rate this year to 1.0 percent mainly because of two factors. One is the resumption of solid agricultural production following the drought. Production this year has been extremely good, especially for maize," Mlachila told Reuters after the IMF's annual visit to South Africa.
"At the same time we expect a modest rebound in mining production, mostly reflecting improved commodity prices, especially for iron ore and coal."
South Africa is seen harvesting 14.54 million tonnes of maize in 2017, up 87 percent from last year's drought-hit crop after rains returned, the government's Crop Estimates Committee forecast last month.
Mlachila, however, said "relatively high levels of perceived policy uncertainty" that have weighed down on consumer and business confidence were among the risks to growth.
The IMF was also concerned with high levels of contingent liabilities among state-owned companies and the overall efficiency of the firms, which increases costs, he said.
Policy uncertainty heightened this year after President Jacob Zuma sacked finance minister Pravin Gordhan, a favorite with international investors, in March. He was replaced by Malusi Gigaba, who backs the president's aim of redistributing wealth to poor blacks.
S&P Global Ratings and Fitch downgraded South Africa's credit rating to below investment grade last month, citing likely changes in economic policy after the controversial cabinet shake-up.
Gigaba has sought to allay investor fears of drastic policy changes and said the government was committed to maintaining its fiscal consolidation path.
"We definitely think it's a step in the right direction, but obviously we will be following the implementation of the budget in the coming months," Mlachila said.
"But at this point in time, given South Africa's good track record in respecting budget ceilings, we have no reason to doubt they will stick to their budget as approved by parliament."