IMF+identifies+free+labour+market+as+key+to+growth

=**IMF identifies free labour market as key to growth bid**=
 * Business Day, Johannesburg, 19 September 2005**


 * Hilary Joffe, Associate Editor**

THE International Monetary Fund (IMF) has projected SA will grow at an average of 3,4% over the next five years — but says this could rise to 5,5% if the country implements comprehensive labour market and trade reforms, and improves the efficiency of its public enterprises.

The IMF’s scenarios, which are included in its annual Article 4 report on SA, comes as a cabinetappointed task team, led by Deputy President Phumzile Mlambo-Ngcuka, gears up to complete its proposals on how to speed up economic growth and job creation.

The cabinet was briefed on the task team’s progress at its meeting last Wednesday. The team is due to table a report at the next cabinet meeting. It has prepared a broad framework document, and is processing submissions from government departments and provinces, as well as consulting with “various economic roleplayers”.

Government has targeted an economic growth rate of 6%-7% over the next decade, with growth of 10% in investments and in exports over the period, and the creation of 500000 new jobs a year.

The IMF says SA’s potential growth rate has increased as a result of sound policies over the past decade.

But its economists’ estimate of current potential output growth, at 3,25%-3,5%, is lower than that of government, which believes the figure could be 4% or higher.

The fund’s economists see growth continuing to average only 3,4% until 2010, with unemployment declining only slightly from 26% now to 25%.

However, in the IMF’s “accelerated reform scenario”, SA’s economic growth rate would increase steadily over the next five years to reach 5,5% by 2010, at which point the unemployment rate would have fallen to 18,3%.

But getting there, in the IMF’s view, will require “a rapid easing of labour market legislation” that would help increase employment growth one percentage point to just over 3% a year, adding 0,5% to the economic growth rate.

Labour market reform, combined with further trade liberalisation and public enterprise reform, including privatisation, will help improve efficiency and stimulate innovation, says the IMF. This could increase total productivity growth about one percentage point.

The fund suggests relaxing the principle of extending collective bargaining agreements to allow smaller firms to bargain their wages, as well as “simplifying” the minimum wage structure and “streamlining dismissal procedures”.

The department of labour has launched a study on whether labour legislation impedes job growth, small business development and foreign direct investment.

The IMF’s annual Article 4 report on SA was compiled after consultation with government and Reserve Bank officials.

The IMF’s directors, the report says, suggested to the authorities that the Bank target inflation at the mid-point of the 3%-6% of the inflation band rather than focusing on the whole range, in order to anchor expectations.

The report says “the authorities saw some merit in this suggestion”.

The IMF also intervened in the debate about the level of SA’s foreign reserves, suggesting the point could be approaching where the cost of accumulating more reserves could start to outweigh the benefits.

From: http://www.businessday.co.za/articles/economy.aspx?ID=BD4A93274