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Strengthening the Macroeconomic Policy Framework in South Africa

Author

Listed:
  • Tatiana Lysenko

    (OECD)

  • Geoff Barnard

    (OECD)

Abstract

South Africa’s macroeconomic framework has served the economy well, but should be strengthened to make the economy more resilient to external shocks. Enhancing the credibility of the inflation target would provide the monetary authorities with more space for flexibility in the face of exogenous shocks. To ease the pressure on the exchange rate emanating from high commodity prices and sentiment-driven surges in capital inflows, the accumulation of foreign exchange reserves by the central bank should be more rapid, and the removal of remaining controls on capital outflows should be accelerated. Fiscal policy has been generally sound, but should be tighter and more counter-cyclical during the economic upswings to prevent a structural deterioration of the fiscal balance and to create more room for manoeuvre during downturns. A fiscal rule that institutionally constrains discretionary policy may facilitate this task. It would also help ensure that the strong public commitment to address major social challenges, improve access to public services and promote long-term growth by investing in physical infrastructure and human capital can be sustained. In conjunction with a greater effort to identify and tax economic rents from natural resource extraction, consideration should be given to establishing a mechanism to manage commodity price windfalls. This paper relates to the 2010 Economic Survey of South Africa (www.oecd.org/eco/surveys/southafrica). Renforcer le dispositif de la politique macroéconomique en Afrique du Sud Le dispositif de politique macroéconomique de l’Afrique du Sud a produit de bons résultats, mais il convient de le renforcer pour assurer une plus grande résistance aux chocs externes. Améliorer la crédibilité de l’objectif d’inflation donnerait aux autorités monétaires plus de latitude pour réagir aux chocs exogènes. Afin de réduire la pression à la hausse du taux de change, résultant du prix élevé des matières premières et d’entrées de capitaux spéculatifs, il faudrait que la banque centrale laisse augmenter plus rapidement ses réserves de change et que la suppression des contrôles des mouvements de capitaux encore en vigueur s’accélère. La politique budgétaire a généralement été saine, mais devrait être resserrée et devenir plus anticyclique pendant les phases de reprise, pour éviter une dégradation structurelle du solde budgétaire et élargir la marge de manoeuvre disponible pendant les récessions. Une règle budgétaire faciliterait la tâche en soumettant les mesures discrétionnaires à une contrainte institutionnelle. Elle aiderait à garantir aussi le respect durable du ferme engagement de l’État de relever les grands défis sociaux, d’améliorer l’accès aux services publics et de promouvoir la croissance à long terme en investissant dans les infrastructures physiques et le capital humain. Tout en s’efforçant davantage de recenser et de taxer les rentes économiques liées à l’exploitation des ressources naturelles, on pourrait envisager d’instituer un mécanisme de gestion des recettes exceptionnelles tirées des matières premières. Ce document se rapporte à l’Étude économique de l’OCDE de l’Afrique du Sud 2010 (www.oecd.org/eco/etudes/afriquedusud).

Suggested Citation

  • Tatiana Lysenko & Geoff Barnard, 2011. "Strengthening the Macroeconomic Policy Framework in South Africa," OECD Economics Department Working Papers 847, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:847-en
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    File URL: http://dx.doi.org/10.1787/5kghsx2v5345-en
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    References listed on IDEAS

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    1. Monique Reid & Stan Du plessis, 2010. "Loud And Clear? Can We Hear When The Sarb Speaks?," South African Journal of Economics, Economic Society of South Africa, vol. 78(3), pages 269-286, September.
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    4. Amato, Jeffery D. & Gerlach, Stefan, 2002. "Inflation targeting in emerging market and transition economies: Lessons after a decade," European Economic Review, Elsevier, vol. 46(4-5), pages 781-790, May.
    5. Aron, Janine & Farrell, Greg & Muellbauer, John & Sinclair, Peter, 2010. "Exchange Rate Pass-through and Monetary Policy in South Africa," CEPR Discussion Papers 8153, C.E.P.R. Discussion Papers.
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    7. Corrinne Ho & Robert N. McCauley, 2003. "Living with flexible exchange rates: issues and recent experience in inflation targeting emerging market economies," BIS Working Papers 130, Bank for International Settlements.
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    12. Isabelle Joumard & Christophe André, 2008. "Revenue Buoyancy and its Fiscal Policy Implications," OECD Economics Department Working Papers 598, OECD Publishing.
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    Cited by:

    1. Isaacs, Gilad, 2014. "The myth of “neutrality” and the rhetoric of “stability”: macroeconomic policy in democratic South Africa," MPRA Paper 54426, University Library of Munich, Germany.

    More about this item

    Keywords

    Afrique du Sud; capital flows; ciblage de l’inflation; economy; exchange rate policy; exchange rates; fiscal policy; fiscal rules; inflation; inflation; inflation targeting; interest rates; monetary policy; politique budgétaire; politique de taux de change; politique monétaire; règles budgétaires; South Africa; taux d'intérêt; taux de change; économie;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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