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Press Release: IMF First Deputy Managing Director John Lipsky's Statement at the Conclusion of his Visit to South Africa, November 5-7, 2006
November 7, 2006
The First Deputy Managing Director of the International Monetary Fund, Mr. John Lipsky, made the following statement today in Midrand:
"It has been a great pleasure to visit South Africa at the start of my first trip to sub-Saharan Africa as First Deputy Managing Director of the International Monetary Fund. I had the privilege of meeting Finance Minister Trevor Manuel and South African Reserve Bank Governor Tito Mboweni: our talks were constructive and fruitful. I also participated in a stimulating seminar on the challenges of deepening financial sectors in Africa, co-sponsored by the IMF and the UK's Department for International Development (DFID). And I had in-depth discussions with representatives of the private sector and civil society. All these meetings have been enlightening for me. I have also had the chance to visit Soweto.
"Let me take this opportunity to thank the authorities for their gracious hospitality and all those I met for very frank and open discussions.
"South Africa has been enjoying its longest economic expansion on record, thanks in large measure to sound macroeconomic management. In a little over a decade, the authorities have established a strong policy framework and implemented key structural reforms. Growth has increased, inflation has been reduced, the public finances have been strengthened significantly, and, most importantly, living standards are rising.
"Recent economic performance has continued to be strong and the near-term outlook remains broadly favorable. We expect real GDP to grow by some 4.2 percent this year, and at a similar rate in 2007. Recent announcements about medium-term budget plans confirm the continuation of sound fiscal policies. The Reserve Bank has responded appropriately to signs of inflationary pressures over the past few months, but will need to remain vigilant, particularly in view of the uncertainties surrounding the external environment. South Africa's vulnerability to external shocks has increased as a result of the widening of the current account deficit. However, with strong fundamentals in place, including low external debt, adequate foreign exchange reserves, and strong public finances, the economy is well placed to face these risks.
"While recent growth has been impressive by South Africa's historical standards, it has not been enough to make significant inroads into unemployment, poverty, and underdevelopment. Employment has been rising, but unemployment remains far too high. The acute income and wealth disparities inherited from the apartheid era are still painfully evident, poverty is still widespread, and, as in many other African countries, the HIV/AIDS epidemic is extracting a heavy social and economic toll.
"From my discussions, there was general agreement that higher economic growth, along with policies to bolster social cohesion, will need to be a key part of any strategy to tackle these medium-term challenges. I expressed the Fund's broad support for the government's Accelerated and Shared Growth Initiative for South Africa (ASGISA), which seeks to raise growth in a manner that benefits the poor and significantly reduces unemployment. These efforts could be complemented by revising labor market regulations and practices that discourage job creation, and by further progress in liberalizing and simplifying the trade regime.
"The success of South Africa has important implications for the rest of the Africa. South Africa is a major driving force in the region. It is by far the largest market and an increasingly important source of investment in the region. South Africa has a vital leadership role to play in advancing prosperity across the continent, as an active participant in multilateral trade negotiations, as a member of key fora such as the G20, which it will chair next year, and as a leading constituent of regional and pan African organizations such as the Southern African Development Community and the New Partnership for African Economic Development. The continued success of the South African economy will help to further strengthen this leadership role.
"The IMF/DFID seminar on the challenges of deepening financial sectors—an area of particular importance for the IMF in its Medium-Term Strategy—brought together finance ministers, central bank governors, other senior officials and private sector participants from South Africa, Botswana, Namibia, Swaziland, Lesotho, Kenya, Uganda, Tanzania, Zambia, Malawi, Madagascar, Mauritius and Mozambique. I was strongly encouraged by the importance African policymakers place on financial stability and financial sector development. In addition to a better understanding of the many challenges, we also had the opportunity to learn first-hand of the success of newer work—for example, work based on household surveys—to design better targeted policies and help achieve better results. I am also heartened that the private sector is discovering business opportunities in supporting the efforts to deepen and widen financial sectors.
"It is clear, however, that the forward looking agenda on financial sector development remains challenging. Discussions like the one we had today will help in cross-country learning, and allow a more rapid transmission of "best practice" from one country to another. The IMF will play its role in supporting our African member countries in this important endeavor."
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