South African Finance Minister Trevor Manuel has welcomed the “positive tone and content” of the International Monetary Fund (IMF)’s 2003 Article IV Report on South Africa, an annual review the government’s conduct of monetary, fiscal and other economic policies.
Releasing the IMF report to the public on Friday following the new Cabinet’s discussion and review of the document, Manuel said that the government viewed it as “very positive” and a “fair reflection of the strength and sustainability of our economic policies”.
The government had received the final report from the IMF back in September 2003, but had decided that it should be referred for analysis to the new Cabinet, which was appointed following the April 14 national elections, he explained.
In its 2003 report, the IMF Board commended the government for its sound macroeconomic management of both fiscal and monetary policy. It expressed confidence in the government’s “prudent” fiscal expansion as the correct approach to the economic slowdown in the rest of the world in 2002 and sluggish growth in 2003, while also agreeing with its rising spending on social policy, skills development and economic services and commending its strong record of fiscal discipline in the face of budgetary pressures.
Regarding monetary policy, the IMF said that the current policy was “appropriately gauged” to address inflationary pressures. Changes in 2003 to the inflation targeting framework — including the creation of the “explanation clause” and the move to a rolling monthly target — had been supportive of the aim of better influencing inflation expectations as well.
The fund also expressed its continued support for South Africa’s policy of gradual exchange control liberalisation, and welcomed the South African Reserve Bank’s elimination of the net open forward position (NOFP) in May 2003, long a source of vulnerability.
It noted that the local financial and corporate sector indicators were healthy, and that these sectors appeared to be resilient to major exchange and interest rate shocks.
Concerns raised by the IMF included the country’s relatively low level of foreign exchange reserves, as greater reserves would provide more stability to the rand, and HIV and Aids, saying it felt that the government was appropriately treating the disease as a fiscal, as well as a social priority while ensuring that budgetary resources were well spent.
The fund also said that increased and more effective skills development was indicated to be a critical element of raising employment. It suggested that the government should continue to conduct ongoing reviews of labour market regulation.
Importantly, it agreed that the main policy challenge for South Africa continued to be the achievement of higher, broad-based and employment-generating economic growth. In the board’s view, this would be critical to realising the goal of reducing poverty and unemployment, addressing the prevalence of HIV/Aids and ensuring a more equitable society.
Finally, it stressed the importance of improving the local investment climate, which would help boost growth and employment. The IMF felt that moving ahead with privatisation and parastatal restructuring would help realise efficiency gains from the transfer of technology. – I-Net Bridge