Yesterday Prof Kleynhans and the ECON622 class hosted Axel Schimmelpfennig, the senior resident representative of the IMF in South Africa, for a guest lecture.
He gave an overview of the IMF’s mandate and role, focusing on on the surveillance, lending and technical assistance functions. Interestingly, the IMF has been doing more research on social dimensions including gender, health, climate change, inequality, jobs and growth.
Axel also presented the IMF’s outlook for South Africa. The South African economy is buffeted by global headwinds, like China’s economic transformation and lower commodity prices that reduce the demand for our exports, and the pending normalisation of U.S. monetary policy that limit foreign portfolio inflows. Domestically limited electricity supply and the need for fiscal consolidation are combined with some inflationary pressure and the possibility of higher interest rates. Economic growth has slowed faster than expected and the IMF now sees the potential growth rate at around 2% per annum, while forecasting 1.5% growth for this year and the next.
Axel had a number of interesting graphs showing the challenge faced by Minister Nene in next week’s MTBPS. The 2016/17 fiscal year has to see fiscal consolidation, but with slow GDP growth, the spending cuts or tax increases that are needed are even bigger than initially proposed. The IMF’s view is that the key to growth lies in structural reform. This means infrastructure, skills, labour relations, competition and SMEs geared for growth.
If you missed this lecture, you should follow Axel on Twitter: @IMF_SouthAfrica.