Monetary and fiscal policy is ‘as good as it gets’ — structural side now needs attention

Washington — Political uncertainty is probably depressing the value of the rand, according to the head of the International Monetary Fund’s (IMF’s) Africa department.

SA’s fiscal and monetary policy has been “as good as it gets,” Abebe Selassie said in an interview in Washington. “It’s more on the structural side that attention is needed. It’s more about getting confidence in the private sector to invest.’

While most polls are predicting a comfortable win for the ANC in the May 8 general election, President Cyril Ramaphosa faces difficulties introducing reform to stimulate the economy, consolidate spending and reduce corruption. 

“The rand is, of course, among the most freely floating currencies in the emerging-market universe, subject to the ebbs and flows of sentiment,” Selassie said. “Our view is that there’s nothing awry with the calibration of macro policies.”

The rand weakened sharply in 2018 as rising interest rates in the US put pressure on emerging markets including Argentina, Turkey and SA. The currency has gained about 3% against the dollar so far in 2019.

This week, the IMF downgraded its forecast for global growth to the slowest pace since the financial crisis. The fund cut its outlook for SA to 1.2% growth in 2019, down from 1.4% projected in January.

The fund projects sub-Saharan Africa’s economy will grow 3.5% in 2019, accelerating to 3.7% in 2020. Growth in the region is being held back by the relatively slow expansion in major economies including SA, Nigeria and Angola, Selassie said.

“What we see is continued recovery, but it is a two-track recovery amid uncertainty,” Selassie said.

Bloomberg