1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Strengthening the Macroeconomic Policy Framework in South Africa

South Africa’s macroeconomic framework has served the economy well, but should be strengthened to make the economy more resilient to external shocks. Enhancing the credibility of the inflation target would provide the monetary authorities with more space for flexibility in the face of exogenous shocks. To ease the pressure on the exchange rate emanating from high commodity prices and sentiment-driven surges in capital inflows, the accumulation of foreign exchange reserves by the central bank should be more rapid, and the removal of remaining controls on capital outflows should be accelerated. Fiscal policy has been generally sound, but should be tighter and more counter-cyclical during the economic upswings to prevent a structural deterioration of the fiscal balance and to create more room for manoeuvre during downturns. A fiscal rule that institutionally constrains discretionary policy may facilitate this task. It would also help ensure that the strong public commitment to address major social challenges, improve access to public services and promote long-term growth by investing in physical infrastructure and human capital can be sustained. In conjunction with a greater effort to identify and tax economic rents from natural resource extraction, consideration should be given to establishing a mechanism to manage commodity price windfalls. This paper relates to the 2010 Economic Survey of South Africa (www.oecd.org/eco/surveys/southafrica).

English

Keywords: exchange rates, capital flows, exchange rate policy, fiscal rules, inflation targeting, fiscal policy, interest rates, inflation, South Africa, monetary policy, economy
JEL: E61: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Policy Objectives; Policy Designs and Consistency; Policy Coordination; E30: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data); E58: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Central Banks and Their Policies; E31: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Price Level; Inflation; Deflation; E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy; E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy; E50: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy, Central Banking, and the Supply of Money and Credit: General; F32: International Economics / International Finance / Current Account Adjustment; Short-term Capital Movements
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