Treasury: Tough decisions taken early are bearing fruit

Tough economic decisions taken early on are bearing fruit in the face of the world financial crisis, said the South African National Treasury on Tuesday in its medium-term budget policy statement.

“Early decisions on macroeconomic policy, banking regulation, the gradual approach to exchange-control liberalisation, the introduction of inflation targeting and our counter-cyclical approach to fiscal policy have enabled South Africa to benefit from the global environment, while providing a degree of protection from the worst effects of financial contagion,” it said.

It notes that South African banks do not have significant exposures to global de-leveraging.

However, it did say the government would monitor the banking system and “will take appropriate [action] as the need arises”.

“South Africa’s financial sector and deep capital markets have been key strengths in the country’s economic development. The banking sector is well regulated and the gradual approach to exchange-control liberalisation has enabled an orderly diversification of portfolios,” it added.

“The international credit crisis and the slowing global economy will raise the cost of accessing external finance and limit the growth of trade opportunities,” it cautioned.

It noted that faster economic growth depends on higher productive capacity, savings and exports and that the government will look to invest in areas that will boost South Africa’s global competitiveness.

“Alongside sound financial institutions, however, economic progress requires investment in social and infrastructure development,” it emphasised.

“South Africa is well placed to adapt to the changed international environment because our financial system is not reliant on foreign banks, but an improved domestic savings performance is needed. Strong investment will continue to drive growth,” concluded the Treasury. — I-Net Bridge

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