Front Matter

Front Matter Page

© 1996 International Monetary Fund

July 1996

IMF Staff Country Report No. 96/64

South Africa—Selected Economic Issues

This report on selected economic issues in South Africa was prepared by a staff tram of the International Monetary Fund as background documentation for the periodic consultation with this member country. As such, the views expressed in this document are those of the staff team and do not necessarily reflect the views of the Government of South Africa or the Executive Board of the IMF.

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Front Matter Page

INTERNATIONAL MONETARY FUND

SOUTH AFRICA

Selected Economic Issues

Prepared by a staff mission consisting of Mr. J. Fajgenbaum, Mr. B. Bingham, Mr. P. Doyle, Ms. J. Gold, Ms. S. Shirai, and Mr. A. Wolfe

Approved by the African Department

May 8, 1996

Contents

  • Basic Data

  • I. Recent Economic Developments

    • 1. Real sector developments

    • 2. The public finances

      • a. Recent developments

      • b. 1996/97 budget

      • c. Poverty alleviation and social programs

      • d. Fiscal policy reform

      • e. Restructuring of State assets

    • 3. Monetary developments and policies

    • 4. Land reform

    • 5. The external sector

  • Charts

    • 1. Expenditure on GDP, 1990–95

    • 2. Consumer and Production Prices, 1990–95

    • 3. Competitiveness and Employment, 1971–95

    • 4. Composition of Unemployment of Black People, 1994

    • 5. Government Finances, 1989/90–1996/97

    • 6. Monetary Indicators and Interest Rates, 1990–96

    • 7. Exchange Rates, 1985–95

  • Boxes

    • Box 1 The Composition of Unemployment

South Africa: Basic Data

article image
Sources: Data provided by the South African authorities; IMF, International Financial Statiatlcs: and staff estimates.

Excludes statistical discrepancy.

Nonagricultural sector.

Includes errors end omissions of current as well as capital account.

Fiscal year beginning April 1.

Contents

  • II. Capital Flows: Recent Developments and Policy Challenges

    • 1. Introduction

    • 2. Capital flows: recent developments

      • a. Developments prior to 1994

      • b. Developments in 1994–95

    • 3. The currency attack

    • 4. Policy challenges

  • Text Tables

    • 1. Capital Inflows and Macroeconomic Balances

    • 2. Bonds Issued by the Central Government and Public Companies

    • 3. Net Capital Movements, 1993–95

    • 4. Net Capital Movements, 1990–95

    • 5. Rand Bonds Issued in the Euromarket

  • Charts

    • 8. Current and Capital Account Balances

    • 9. Global Bond and U.S. Treasury Rates

    • 10. Long Bond Yield Spread over U.S. Rate

    • 11. Exchange Rates, January 1990-January 1996

    • 12. South African Rand Per U.S. Dollar Rate

    • 13. Development in South Africa and World Emerging Markets

  • Boxes

    • Box 2 The Growth of the Euror and Market

  • III. Recent Developments in Trade Policy

    • 1. Introduction

    • 2. The trade regime prior to 1994

    • 3. Trade reform commitments under the Uruguay Round of the GATT/WTO

    • 4. Trade reform during 1994/96

      • a. Import surcharges

      • b. Customs duties in the nonagricultural sector

      • c. Sensitive industries

      • d. Agricultural trade reform

      • e. Export subsidies

      • f. Trade reform and macroeconomic developments in 1994–95

    • 5. Future trade reform under the WTO

  • Text Tables

    • 6. Trade Reform—Intermediate and Capital Industrial Goods

    • 7. Trade Reform—Industrial Final Goods

    • 8. Timetable for Tariff Reduction in the Motor Vehicle Industry

  • IV. A Free Trade Arrangement with the European Union

    • 1. Introduction

    • 2. Background

    • 3. Access to the EU market

    • 4. Protection against imports from the EU

    • 5. Impact on the South African economy

      • a. Loss of fiscal revenue

      • b. Trade diversion

      • c. Impact on economic growth and employment

    • 6. Regional trading arrangement

      • a. Southern African Customs Union

      • b. Southern African Development Community

    • 7. Conclusion

    • Appendix I: WTO Rules on Regional Trading Agreements

    • 1. Substantially-all-trade requirement

    • 2. Not-on-the-whole-higher-or-more-restrictive requirement

    • Appendix II: Southern Africa Customs Union (SACU)

    • Appendix III: The Southern African Development Community (SADC)

  • Text Tables

    • 9. Composition of Exports, 1970–94

    • 10. Composition of Imports, 1970–94

    • 11. SACU Receipts as a Share of Total Revenue and Grants and as a Share of Tax Revenue

    • 12. Economic Indicators of Member Countries of SACU

    • 13. Basic Economic Indicators of Member Countries of the SADC

  • V. Accelerating Growth and Fiscal Policy

    • 1. Introduction

    • 2. Foreign saving constraint

    • 3. Public sector saving target over the medium term

    • 4. Fiscal policy and structural reform

    • Appendix I: Primary Balance and a Declining Debt-to-GDP Ratio

    • Appendix II: The Behavior of Public and Private Saving in South Africa

    • Appendix III: Possible Subsidy Reduction Program

  • Text Tables

    • 14. Macroeconomic Framework—Authorities’ Fiscal Scenario

    • 15. Fiscal Policy—Six Percent Real Growth by FY 2000/01

    • 16. High Growth Framework—Public and Private Savings

    • 17. OLS Regression Results for Saving Model

    • 18. OLS Regression Results for Saving Model (First-differenced data)

  • VI. Narrow Monetary Aggregates

    • 1. Selection criteria for a nominal anchor

    • 2. Reserve money

      • a. Which parts of reserve money?

      • b. Identifying the scale variable

        • (1) Structural breaks in notes and coin

        • (2) Cointegration tests

      • c. Inflation predicting properties

    • 3. Measuring cash in circulation outside banks

    • 4. Conclusion

  • Text Tables

    • 19. Quarterly Model of Notes and Coin: Long-run Relationships

  • Charts

    • 14. Composition of Reserve Money, 1965–95

    • 15. Share of Notes and Coin Outside Banks in Ml, 1965–95

    • 16. Velocity of Notes and Coin Outside Banks, 1965–95

  • VII. Mining Taxation

    • 1. Introduction and background

    • 2. Mineral rights

    • 3. Gold and the economy

    • 4. Mining taxation

      • a. Accelerated depreciation allowances

      • b. The gold tax formula

    • 5. Risk insurance

    • 6. Summary and conclusion

    • Appendix I: Implementation of a levy on the right to mine

    • 1. The resource rent tax

    • 2. Royalty payments (“severance taxes”)

  • Annex I: Tax Summary as of April 1, 1996

  • Annex II: Exchange Arrangements

  • Charts

    • 17. Gold Tax Formula

  • Statistical Appendix Tables

    • 1. Expenditure on GDP, 1992–95

    • 2. Gross Fixed Investment and Capital Stock, 1992–95

    • 3. Financing of Domestic Investment, 1990–95

    • 4. Personal Income and Expenditure, 1992–95

    • 5. Real Gross Domestic Product at Factor Cost, 1992–95

    • 6. Indicators of Mining and Quarrying Activity, 1988–95

    • 7. Indicators of Manufacturing Activity, 1990–95

    • 8. Nonagricultural Employment, 1988–95

    • 9. Remuneration, Labor Productivity, and Unit Labor Costs in the Nonagricultural Sector, 1991–95

    • 10. Price Developments, 1991–95

    • 11. Government Finances, 1991/92–1996/97

    • 12. Central Government Revenue, 1991/92–1996/97

    • 13. Central Government Revenue, 1991/92–1996/97

    • 14. Economic Classification of General Government Expenditure, 1992/93–1996/97

    • 15. Functional Classification of General Government Expenditure, 1991/92–1995/96

    • 16. Functional Classification of General Government Expenditure, 1991/92–1995/96

    • 17. Financing of the Central Government Budget, 1991/92–1996/97

    • 18. Central Government Debt, 1991–95

    • 19. Growth Rates of Monetary Aggregates, 1983–95

    • 20. Monetary Survey, 1991–95

    • 21. Interest Rate Development, 1991–95

    • 22. Changes in Bank Credit, 1991–95

    • 23. Balance of Payments, 1991–95

    • 24. Quarterly Balance of Payments, 1993–95

    • 25. Quarterly Balance of Payments, 1993–95

    • 26. Volume and Unit Value of Exports and Imports, 1991–95

    • 27. Services and Transfers, 1990–94

    • 28. Net Capital Movements, 1991–95

    • 29. External Debt, 1987–95

    • 30. External Reserves, 1991–95

    • 31. Exchange Rate and Gold Price Developments, 1988–96