Abstract
Advocacy about the overvaluation of the South African rand isn't completely new , since South Africa has given up the financial rand and fixed exchange rate in 1995 , and since it is also known as suffering from "Dutch Disease", relying essentially on its huge natural resources to export. It has currently been accentuated by the shift of South African exports from manufacturing products to commodities.
According to the staff, the South African exchange rate is likely to be overvalued around 10 to 15 percent, reflecting effective competitiveness weaknesses. On average, all the three quantitative approaches (macro-balance, external sustainability and equilibrium real exchange rate) tested to assess the competitiveness problems gauged this overvaluation .
First of all, the macro-balance approach revealed a misalignment between medium-term current account projection and a norm, meaning the limited current account deficit of South Africa is mostly due to the overvaluation of the rand.
Then, the external sustainability approach exposed a misalignment of South African net external liabilities compared to an average of emerging economies. Finally, the analysis of the equilibrium real exchange rate (ERER) highlighted the equilibrium exchange rate appreciation resulted from terms of trade gains, as South African shifted to commodities from manufacturing products , and rising government consumption.
