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)....

Strengthening the Macroeconomic Policy Framework in South Africa

10.1787/5kghsx2v5345-en