IMF article IV 2011 - Country report on South Africa

Résumé du document

Advocacy about the overvaluation of the South African rand isn't completely new , since South Africa has given up the financial rand and fixed exchange rate in 1995 , and since it is also known as suffering from "Dutch Disease", relying essentially on its huge natural resources to export. It has currently been accentuated by the shift of South African exports from manufacturing products to commodities.

According to the staff, the South African exchange rate is likely to be overvalued around 10 to 15 percent, reflecting effective competitiveness weaknesses. On average, all the three quantitative approaches (macro-balance, external sustainability and equilibrium real exchange rate) tested to assess the competitiveness problems gauged this overvaluation .

First of all, the macro-balance approach revealed a misalignment between medium-term current account projection and a norm, meaning the limited current account deficit of South Africa is mostly due to the overvaluation of the rand.

Then, the external sustainability approach exposed a misalignment of South African net external liabilities compared to an average of emerging economies. Finally, the analysis of the equilibrium real exchange rate (ERER) highlighted the equilibrium exchange rate appreciation resulted from terms of trade gains, as South African shifted to commodities from manufacturing products , and rising government consumption.

Extraits

[...] Both the IMF and the OECD[29] are concerned about the loose fiscal policy, which, if maintained and apparently not reversible, could be finally sanctioned by the markets and the private sector. Less confident in the growth rate and in government revenue increase in the upcoming years[30], the South African authorities plan to keep a looser stance in fiscal policy and to address the ability of local authorities to deal with higher public expenditures by improving better planning in health or education and financial, risk and project management at the provincial and the municipal levels. [...]

[...] In this respect, implementing the virtuous cycle of inclusive growth (cf. Appendix would have tremendous positive effects on growth, consumption and also on unemployment. Higher domestic savings and investment would meet high-skilled labour force to develop. Since it will increase labour share in productivity, it is also likely to enhance productivity because the unemployed would access to skills and learning-by- doing effects, while shrinking unemployment and youth increasing participation would push up savings and investment, in a flowing and well- functioning banking system. [...]

[...] It has currently been accentuated by the shift of South African exports from manufacturing products to commodities. According to the staff, the South African exchange rate is likely to be overvalued around 10 to 15 percent, reflecting effective competitiveness weaknesses. On average, all the three quantitative approaches (macro- balance, external sustainability and equilibrium real exchange rate) tested to assess the competitiveness problems gauged this overvaluation[3]. First of all, the macro-balance approach revealed a misalignment between medium-term current account projection and a norm, meaning the limited current account deficit of South Africa is mostly due to the overvaluation of the rand. [...]

[...] Idem, pp.22-23 Cf. Warning in October from Gill Marcus, 9th Governor of the South Africa Reserve Bank (SARB) http://financialsectorforum.com/2011/10/14/sa- wary-of-brics-aid-for-euro-rescue/ (access on the 08/12/11) Cf. World Bank cited in bibliography, p.4 Idem, p.ix Ibidem Idem, p.x Cf. Doing Business 2012. South Africa, cited in bibliography, where South Africa is ranked with most and sometimes before most of the emerging and OECD countries. Cf. http://data.worldbank.org/country/south-africa Cf. [...]

[...] Generally, high exchange rate favored either very competitive companies or very attractive and solicited sectors, such as commodities pushed up by the structural growing Asian demand. c. Is there a case for trying to curb capital inflows? Actually, capital inflows, essentially on short-term, towards South Africa are very significant but also very volatile. Indeed, inflows were high between July and November 2010, followed by outflows until March 2011 and then inflows again, still on going in July 2011, when the report is published. [...]