Government says the International Monetary Fund (IMF) report on South Africa is a fair assessment of the fiscal situation in the country.
“Though the government does not share all the views expressed in the IMF report, the report is a fair assessment of the economic conditions in South Africa and will be considered together with similar assessments during policy formulation by the government,” said the National Treasury.
The IMF released its Staff Report for the 2011 Article IV Consultation with South Africa on Thursday.
According to the report, the South African economy is forecasted to grow by 4% in 2011 and 2012, which will be strengthened by domestic demand. The forecast is above the Reserve Bank’s growth prediction for this year, which is 3.7%.
According to the report, South Africa’s economic recovery is uneven, with downside risks mainly being external. These are evident in the recent global economic activities.
South Africa’s current account deficit, according to the report, will increase to about 5% - 6% over the medium term.
The report noted that in the next 12 months, the output gap is set to close and there is a possibility that headline inflation will breach the top of the target range.
The report also noted that the key challenges ahead are to support the on-going recovery from the recession and to raise growth to reduce high unemployment and inequality.
The directors of the IMF welcomed the New Growth Path, which aims to create five million jobs in the next decade.
“Directors endorsed South Africa’s inflation targeting framework, noting that it has kept inflation expectations well anchored. While recognising the difficulties in determining the precise timing for starting the tightening cycle in light of the uncertain global environment , directors encouraged the authorities to remain vigilant ….. They noted that a pronounced increase in wages or inflation expectations would call for policy tightening sooner than currently envisaged.”
National Treasury noted that the issues raised by the report are already reflected in the priorities and outcomes that government has set itself.
The report also commended the resilience and strength of South African banks. It also noted that increased product and labour market flexibility is critical to improve competitiveness and inequality.
The IMF Staff Mission undertook the Article IV Consultation with South Africa on 25 May to 7 June 2011. Cabinet considered the report on Wednesday.