afrol News, 2 December - While economic growth was disappointingly low in South Africa in 2003, developments so far in 2004 indicate an economic growth rate close to four percent this year. With a low inflation rate and a strong rand, South Africa is said to have achieved the necessary economic stability to address unemployment and poverty.

These were the conclusions of a by the International Monetary Fund (IMF), reviewing the economic performance of South Africa. The analysis, published today, found that "sound financial policies" had helped turn the negative trends observed last year.

Economic growth in 2003 had slowed to 1.9 percent, from 3.6 percent in 2002, despite strong domestic demand and a strong increase in government expenditures. "But the increase in aggregate demand did not translate into higher growth, largely because of a strong currency appreciation, weak overseas demand, and poor weather-related performance in agriculture," the IMF concluded on South Africa's poor growth in 2003.

Developments so far in 2004 were pointing to "a rebound in growth," the IMF found. Annual real GDP growth in the second quarter this year had been at 3.9 percent and a range of indicators, such as retail sales and consumer and business confidence measures, "point to an acceleration in activity."

The general economic situation in contemporary South Africa was seen as positive. The strength of the rand had contributed to a marked fall in inflation. Inflation fell from a peak of over 10 percent in October 2002 to 4.4 percent in May 2004. Further, the South African Reserve Bank had been able to reconstitute its net international reserve position.

To help address South Africa's pressing social problems and provide a mild counter-cyclical boost to the economy, the otherwise prudent fiscal policy had been eased somewhat in 2003/04. The budget deficit increased to 2.4 percent of GDP from 1.1 percent in 2002/03, reflecting an increase in social spending of 1.3 percent of GDP.

The IMF analysts found no reasons to criticise this increased spending on the social sector, even if it was combined with a growing budget deficit. The envisaged moderate increase in South Africa's deficit in the 2004/05 budget seemed "appropriate" to help address the country's "pressing social problems," the IMF said. The analysts however urged the government to consider 3 percent as the "upper limit" for its budget deficit.

- While the stabilisation effort is now largely complete, South Africa faces formidable challenges in the form of high unemployment and widespread poverty, the IMF analysis said. With an unemployment rate at around 30 percent, a government programme to increase employment by skills development, improvements in education standards, a public works program, and amendments to labour legislation was seen as "important steps in the right direction."

The IMF team also agreed with the South African government on the more controversial issues of black economic empowerment and land reform. This, said the IMF, would be "vital in helping to reduce social disparities." Also government steps to fight the AIDS pandemic were welcomed.

The IMF concluded that South Africa's economy "appears poised for a recovery in activity." The largest risks for a break in the ongoing economic recovery, according to the Fund, were related to "a continuation of the high pace of wage settlements, higher oil prices and renewed currency appreciation."

By staff writer

© afrol News

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