Axel Schimmel-pfennig

Position: Advisor, African Department

Institution: International Monetary Fund

Expertise: International macroeconomics

Axel is a national of Germany, and studied economics at the University of Tübingen, the University of North Carolina at Chapel Hill, and the University of Kiel where he completed his masters and doctorate in economics. Since 1999, Axel has worked at the International Monetary Fund in a number of capacities. He is currently the IMF’s mission chief to Uganda and an Advisor in the IMF's African Department. From 2012-16, he was the senior resident representative in South Africa. Before coming to the IMF, Axel worked as a research associated at the Kiel Institute of World Economics where he consulted for the German Ministry of Economics on raising potential growth and reducing structural unemployment. He also taught econometrics in the Institute’s Advanced Studies in International Economic Policy Research program. Axel has written on fiscal and external sustainability, sovereign debt crises, public debt management, the effectiveness of fiscal policy, pension reform, labor markets, and promoting high and sustained growth.

Articles

What makes the rand so volatile: global or home-made factors?

View all

Editor's Corner

Note from the Editor

Behind South Africa's fiscal crisis

In this week’s Econ3x3, we publish the fourth and last part of a series by Michael Sachs on South Africa’s fiscal crisis. This is an edited version of Sachs’ long paper prepared for the Public Economy Project based at Wits University’s Southern Centre for Inequality Studies (www.wits.ac.za/scis).

We publish in the aftermath of the violence in two of the most populous provinces in the country - described by President Cyril Ramaphosa as an attempted insurrection, but also underpinned by long-entrenched poverty exacerbated by the lockdowns.

The violence has also come at a time when, as Sachs explains in Part 2, the value of public services has been steadily eroded. Although compensation for public employees continued to rise above inflation, expenditure was contained in other ways such as neglecting maintenance and slowing hiring. The latter has meant there are fewer teachers, healthcare workers and police personnel, proportionately, serving the population.

Moreover, substantial allocations to flailing State-Owned Enterprises, has come at a cost to the poor.

In Part 4, Sachs overviews his main arguments, and looks at possible policy solutions to the crisis. Two decades ago, he writes, "South Africa was confident about its economic future. Public expenditure expanded to deliver on social objectives that had been deferred at the outset of the democratic transition. It included a permanent expansion of core public services... an increase in pro-poor fiscal transfers, significant real improvements in the remuneration of public employees and a surge in public infrastructure investment."

In spite of an ambitious expenditure program, taxes were lowered. However, South Africa's economic expansion stalled because of shifts in the global economy. But at exactly the time that the country needed coherent policymaking and strong institutions, "the domestic policy and governance landscape changed." Following the 2007 Polokwane of the ANC, which brought the Zuma administration to power, policy making shifted from "constitutional structures of government to opaque and diffuse processes within the ANC. Government committed itself to further expansions of public services but did not agree on a fiscal programme to support these aspirations."

Sachs’ careful review of fiscal data and economic policy over the past two decades allows him to identify why we seem to have become trapped in our current fiscal crisis: a high debt-to-GDP ratio, low growth, rising unemployment, and extreme poverty in parts in spite of social spending. On top of these entrenched structural weaknesses, the country has been dealt a devastating blow by the Covid-19 pandemic and lockdowns.

In this part of his series, Sachs examines possible policy solutions, including the role of the Reserve Bank, compulsory financing, and public infrastructure investment.

South Africa’s crisis, seen through the lens of fiscal analysis, seems dire. But we hope this series will contribute, in part, to naming and explaining its dimensions to help policymakers develop the tools to deal with it.

Pippa Green

July 21, 2021

*****************************

Working Papers from the REDI3x3 project are available HERE

*****************************

The three Rs...

READ, WRITE & REASON

Econ3x3 provides a platform to promote robust economic policy discourse in South Africa. The complexity, but also sterility of public debate on many policy issues, demands that knowledgeable individuals engage in robust debate. This can inform other individuals and policymakers on issues that they deal with in day-to-day policy making or policy analysis.

Write an article; write a commentary
Subscribe to our email or Twitter notification services, so that you are aware of new postings.
Share articles with your colleagues and friends.
There is a comment box at the bottom of every article (you have to register).
PDFs of articles can be downloaded for private use or students. There is a download icon at the bottom of each article.
To read more about REDI3x3 - The Reseach Project on Employment, Income Distribution and Inclusive Growth, click on the REDI3x3 logo.

Axel Schimmel-pfennig

Articles

Note from the Editor

Behind South Africa's fiscal crisis

Working Papers from the REDI3x3 project are available HERE

READ, WRITE & REASON

Creating jobs, reducing poverty I: Why the informal sector should be taken seriously and enabled properly

Who are the middle class in South Africa? Does it matter for policy?

What is the role of manufacturing in boosting economic growth and employment in South Africa?

Adcorp’s employment and unemployment figures are not taken seriously by researchers – yet they can do much harm

Informal settlements: poverty traps or ladders to work?

Why are foreign-run spaza shops more successful? The rapidly changing spaza sector in South Africa

How much is inequality reduced by progressive taxation and government spending?

How high is graduate unemployment in South Africa? A much-needed update

A job in the informal sector reduces poverty about as much as a job in the formal sector

Who creates jobs, who destroys jobs? Small firms, large firms and labour market rigidity