Banking and Finance
IMF backs SA’s economy The International Monetary Fund’s latest report on South Africa shows that the country has enjoyed strong economic performance amid real gross domestic product (GDP) growth, rising employment, a strengthening fiscal position and rising international reserves.
The IMF’s 2007 Article IV Staff Report on South Africa that was released on Monday discusses six key issues including GDP growth, fiscal position, balance of payments, exchange rate, labour market issues and monetary policy. Speaking at the release of the report in Pretoria on Monday, Finance Minister Trevor Manuel said though the IMF’s growth forecasts were lower than the National Treasury’s own forecasts, the report could be seen as “a statement of the health of the country”. Following the 5% real GDP growth experienced in 2006, the IMF’s projected growth for 2007 is 4.8% followed by 4.5% real GDP growth in 2008. The National Treasury, however, stated it has a more optimistic growth projection of 5% for this year, following on stronger capital information and employment growth as well as stronger total factor productivity growth. According to the report, the Accelerated and Shared Growth Initiative of South Africa (AsgiSA) has the ability to relieve pressing capacity constraints and productivity-enhancing reforms could further raise the potential growth rate of the economy. The report raises the issue of supply relative to demand in the country, and the Treasury states the “mismatch between supply and demand is reflected in South Africa’s significant 208
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current account deficit and rising inflation [rate]”. “While we generally agree with that view, inflationary pressures are also being driven by adverse food and energy price developments,” said the National Treasury. “These should start to abate over the next year, lowering the contribution of food and energy price inflation to overall inflation.” The report has also identified the long-standing issue of unemployment in the country as one of the biggest challenges to economic growth in the country. The IMF believes rapid growth of female and unskilled labour including a structural shift in labour demand towards skilled labour, long distances between places of residence and work as well as labour market regulations and practices that discourage job creation are some of the causes for the high unemployment level. The report, however, states the “economy is undergoing its longest expansion on record, and in recent years has experienced elevated growth in an environment of rapid credit expansion, booming asset prices, strengthening public finances, and rising international reserves financed by large capital inflows.” Manuel added that the IMF has applauded South Africa on its black economic empowerment and land reform initiatives, calling them “very necessary” for the country. Source: BuaNews / International Marketing Council