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IMF Staff Visit Highlights Key Policy Recommendations for South Africa’s Economic Growth and Inflation Control

November 27, 2024
2 min read
Author: Aayushya Ranjan

The IMF's 2024 Article IV Mission to South Africa emphasized macroeconomic stability, structural reforms, and cautious inflation management, recommending policy adjustments to enhance growth and reduce inequality.

International Monetary Fund has published its ‘South Africa: Staff Concluding Statement of the 2024 Article IV Mission’. They mentioned that a Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Following are excerpts from the same.

An International Monetary Fund (IMF) team led by Delia Velculescu visited South Africa on November 11-25 to hold meetings with the economic authorities and other counterparts from the public and private sectors for the 2024 Article IV annual consultation. Discussions focused on policies to ensure macroeconomic stability and the structural reforms needed to durably lift potential growth, create jobs, reduce poverty and inequality, and facilitate the transition to a greener economy.

The mission welcomed the SARBs’ September and November 2024 decisions to lower the policy rate by a cumulative 50 basis points. These actions have been appropriate, given that headline inflation has fallen well below the mid-point of the target range and inflation expectations have declined. As risks to inflation remain, including from slower-than-expected global disinflation and geopolitical tensions, as well as from concerns related to domestic administered prices, wages, and food inflation, the central bank should continue to carefully manage the normalization of the policy rate towards its neutral level, remaining flexible and data-driven on the pace and duration of the easing cycle.

The inflation-targeting framework has served South Africa well. However, inflation expectations have stayed above SARB’s midpoint of the target range, putting pressure on inflation, which disproportionately affects the poor. The inflation differential with main trading partners also puts pressure on the exchange rate, further eroding purchasing power. Shifting from the current target band to a lower point target at an appropriate time could help lower expectations and inflation, supporting medium-term macroeconomic stability. Careful design and gradual implementation will be key to minimize potential near-term output costs. A well-calibrated tolerance band can help provide flexibility given the volatile and shock-prone global environment. Close coordination between the Treasury and the SARB and clear communication of policy plans will be critical to support credibility and anchor expectations.

– Excerpt from IMF’s Mission Concluding Statement

 

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