IMF nod for SA's economic policies
17 April 2007
Sound macro-economic policies and a strong banking system have positioned South Africa well to resist external shocks, a senior International Monetary Fund (IMF) official told news agency Reuters on Sunday.
"We think South Africa has been managing its economic policies very well," Saul Lizondo, the IMF's mission chief for South Africa, told Reuters. "We haven't seen any adverse impact on the economy from the sharp [currency] depreciation in 2006."
Lizondo said the IMF considered the South African economy as having "several strengths in terms of absorbing external shocks," including low external debt levels, the central bank's growing reserves stockpile, and a flexible exchange rate system.
The SA Reserve Bank hiked interest rates by two percentage points in 2006 in a bid to curb soaring private sector credit growth, which is contributing to a widening current account deficit.
Lizondo told Reuters, however, that the monetary tightening was unlikely to affect South Africa's gross domestic product (GDP) growth, which the IMF predicts will touch 5% for 2007 and 2008.
On the downside, Lizondo said the country's credit and consumption growth remained too high.
While South Africa's banks were well capitalized, with low levels of non-performing loans providing some cushion against deterioration in loan portfolios, the borrowing and spending boom carried risks for more vulnerable households.
Lizondo also told Reuters that, with large portfolio flows into South Africa's stock and bond markets, the country has so far had no problem financing its current account deficit, which has surged to a record 7.85 of GDP.
However, he warned, "if there were to be a change in global investor sentiment toward emerging markets, South Africa could be vulnerable."
SouthAfrica.info reporter
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