Something must be done, says Godongwana ahead of news on fuel price relief

The National Treasury and the department of mineral resources & energy met at the weekend to discuss options regarding fuel prices, which have been hitting highs and threatening to render SA’s fragile economy uncompetitive.

Finance minister Enoch Godongwana told Business Day during the African Development Bank (AfDB) 2022 annual meetings in Accra, Ghana, last week that the SA government was looking into a lot of proposals to mitigate the situation.

“Everyone understands that an increase in petrol prices is a blunt instrument — it cuts across food prices. It is just really going to raise the cost of living in the economy and therefore something must be done,” he told Business Day.

Godongwana said the content and format of the proposal to alleviate rising fuel prices is a matter the National Treasury and the mineral resources & energy department would announce this week.

At the weekend, the Treasury team met the department and minister Gwede Mantashe “to fine-tune the proposal”.

Godongwanga said: “I don’t want to say we will be saved; we are looking into it.”

This year has been tumultuous, with supply and demand imbalances made worse by geopolitical tensions, rising inflation — which led to the withdrawal of monetary policy stimulus — and slowing economic growth amid limited fiscal space.

While heightened inflation is more evident in developed markets, which provided considerable policy stimulus during the Covid-19 lockdown, emerging markets like SA have not gone unscathed.

Higher inflation has spread like wildfire, fuelled by global supply linkages that also spill over to lower growth risks.

Policy support has been curtailed out of fear of runaway inflation, and some are concerned that this could result in a hard landing for many economies. This includes SA, which faces its own challenges, especially since the two months of fuel price relief in the form of a reduction in the general fuel levy by R1.50/l come to an end at the end of the month.

In his delivery of the latest monetary policy statement, Reserve Bank governor Lesetja Kganyago prepared businesses and consumers for higher borrowing costs as he argued that monetary policy still remains “accommodative”.

The Bank upgraded its inflation forecast slightly to 5.9% for the year — just below the upper end of its target range — and said it will then slow to an average 5% in 2023 and 4.7% in 2024.

“You do not allow inflation to run unsustainably high because the cost of bringing inflation from those high levels to the levels that are consistent with price stability” is significant, Kganyago said.

“High inflation does not lead to higher growth.” Instead, “it’s eating into the incomes of working people”.

SA’s official unemployment rate remains the highest in the world. At the last posting by Stats SA, unemployment increased to 35.3% in the last quarter of 2021 from 34.9% in the third quarter.

Godongwana told Business Day that rising inflation is not only a Reserve Bank problem but also a headache for President Cyril Ramaphosa, as it erodes the buying power of consumers.

The lockdown in China because of the Covid-19 outbreak has big implications for SA, the minister said. With the Ukraine issue, among others, and rising prices, SA will see inflationary pressures rising a great deal, he said. “Now the petrol issue is adding to these risks. And what that means is that it is constraining the amount that should be available for economic development,” he said.

There are many risks and some of them are beginning to materialise. These risks include Eskom, e-tolls, SAA and Denel. State-owned enterprises are a constant risk to the economic outlook, said the minister.

However, he said all was not bad. The SA government has wanted to construct a narrative of monetary policy stabilising, “which I think is beginning to find place with the investor community”.

“Bankers and investors have said ‘it is strange enough that despite all your challenges, SA seems to be the darling in emerging markets’.

“Russia is completely out of emerging markets. Turkey has more crises than us, which places us in confidence.

“The question is to what extent are we going to manage these risks in such a manner that we don’t lose that confidence,” Godongwana said.

He said SA’s public service wage bill will shake the markets. “It is going to be a challenge.”

zwanet@businesslive.co.za

• Thuletho Zwane is attending the AfDB 2022 May annual meetings in Accra, Ghana.