The Coordination of Monetary–Fiscal Policy in South Africa

The importance of policy coordination between fiscal and monetary policy authorities has become more apparent, in the face of unexpected economic shocks and persistent macroeconomic challenges. In this paper, we employ the Set-Theoretic Approach (STA) to explicitly measure the presence of coordination between fiscal and monetary policies from 1990 to 2023 in South Africa. In addition, the model measures policy shocks theoretically and structurally using a structural vector autoregressive (SVAR) model. The results indicate a weak level of policy coordination estimated at 24% where shocks are measured theoretically. Where shocks are measured structurally, the results still present weak policy coordination estimated at 33%. These results underscore the need for stronger policy coordination in South Africa, particularly during periods of economic strain such as the Global Financial Crisis and the COVID-19 pandemic, when conflicting fiscal and monetary stances weakened policy effectiveness. In the South African case, limited coordination contributed to procyclical fiscal tightening alongside contractionary monetary policy, which constrained growth and delayed recovery.