Evan Pickworth

Evan Pickworth

The International Monetary Fund's (IMF's) first deputy managing director John Lipsky said yesterday that he saw tremendous potential in South Africa, but he also emphasised the need to maintain transparent economic policies, as well as the need to take action, to benefit from foreign direct investment.

He was speaking at a presentation on the outlook for sub-Saharan Africa.

Head of the IMF's African Department, Abdoulaye Bio-Tchane, highlighted that according to IMF research, inflation in sub-Saharan Africa remained under control despite high oil prices, with growth set to reach 6 percent next year and inflation set to fall slightly this year.

Lipsky said while the increase in South Africa's current account deficit was a surprise, the country essentially had a sound economy and some adjustment in the current account could be expected in the future.

Bio-Tchane said South Africa's external debt in foreign currency was low. He said the flexible exchange rate system permitted an adjustment because "it's harder where you have fixed exchange rates".

The IMF did, however, highlight that a deterioration in South Africa's terms of trade would be a problem.

"The challenge is to add to the importance of the effectiveness of policy going forward. Your policy is a floating exchange rate with an inflation target."

"It is essential that it is maintained. Productivity and investment growth form part of that policy. The interpretation of growth and sustainability is critical on maintaining productivity growth," explained Lipsky.

South African Reserve Bank head of research Johan van den Heever said the economic policy should not be narrowed to just inflation. - I-Net Bridge