S. Africa takes measures to curb instability

His endorsement of central bank governor Tito Mboweni’s accumulation strategy comes amid a focus on heightened volatility of international financial markets, which Manuel said had given rise to “renewed concern about the size and sustainability of global growth and trade imbalances”. Manuel told the National Assembly in his budget vote speech yesterday that fiscal policy would also be driven by the need to use gains from high commodity prices to build budget surpluses. These surpluses could then “be wound down over time to finance social and economic infrastructure and provide space for counter-cyclical demand management when prices fall”. “The potential for a sharp unwinding of the global imbalances and decline in commodity prices reminds us that in all financial crises the poor suffer most because there are few economic insurance mechanisms in place to help them with the income losses,” he said. “With this in mind, our policies are partly aimed at reducing vulnerability to the more uncertain global environment and addressing the domestic imbalances created by the commodity price cycle. “Risk premiums on emerging market assets and interest rates in emerging capital markets are low by historical standards. “This means that there is little room for easing monetary policy in the event of a crisis, and that the build-up of credit to relatively unprofitable activities and to finance consumption may prove unsustainable,” he warned. Manuel expressed concern about two aspects of South Africa’s economic growth path ‘ the “exceptionally fast” pace of credit expansion and sluggish mining production, despite higher export prices. Investment in new output capacity was disappointing,” he said. Manuel said that economic growth, although prolonged, had been unbalanced, with expenditure growing faster than domestic production, leading to a current account deficit. The finance minister also said that the demand for skills did not match supply. ‘ Business Day.

June 2006
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