There’s no quick fix for South Africa’s financial problems: Kganyago
South Africa doesn’t have balanced or sustainable growth, says South African Reserve Bank governor Lesetja Kganyago.
Presenting a public lecture at the University of South Africa on Wednesday (24 July), Kganyago said that these issues are likely to worsen in the coming years as the country’s debt obligations increase.
“Adjusting for the increase in our population, we have been getting poorer for half a decade. We also don’t have balance or sustainability,” he said.
“Government’s debt to-GDP ratio is moving steadily higher, and with bailouts for state-owned enterprises, there are real risks we will soon have one of the highest debt levels amongst our emerging market peers.”
“Because we have borrowed so much from abroad, we pay a rapidly rising amount of interest to non-South African creditors, and this is contributing to a large current account deficit – again, one of the biggest in our peer group.”
Kganyago said that there were also ‘real limits’ on what monetary policy can do to help.
“Rate cuts, like the one we’ve just decided on, provide some help on the margin, but inflation shows few signs yet of further moderation,” he said.
“There is a healthy debate about where exactly we need to go with the repo rate. But we see no monetary policy stance that would single-handedly transform South Africa’s prospects.”
Inflation vs growth
Kgyango said that economic circumstances get more difficult, there is a concern that ‘more people will choose to avoid making hard choices’.
He specifically drew attention to the growing sentiment that some of the country’s major issues could be fixed if the SARB keeps cutting rates.
“The facts are, central bankers care about growth and employment, and the SARB is no exception,” he said.
“But we do not face a permanent trade-off between inflation and growth. There are short-term trade-offs involving growth, but after a while, inflation and interest rates are the things that permanently increase.”
Kganyago said that the Reserve Bank can deliver low and stable inflation, but that balanced and sustainable growth also requires contributions from many other parts of government and society.
“Ultimately, prosperity cannot be created by an MPC setting interest rates. We are but one part of the orchestra; we are not soloists. We are doing our best but we can’t put on a show alone,” he said.
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