Reserve Bank governor Lesetja Kganyago urged politicians to make hard, unpopular fiscal choices to maintain the credibility of budgetary commitments as they juggle spending pressures with one of the heaviest debt loads in emerging markets.
“We must be honest as South Africans that we cannot have enough of everything and there are trade-offs to be made and those trade-offs will be difficult. And who makes those choices? It is duly elected representatives of our people,” Kganyago said.
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His comments to Business Day this week come as unsolved spending pressures from state-owned entities, in particular, threaten to erode the credibility of a widely welcomed budget.
His remarks also come amid growing fears that the ANC, expected to lose its electoral majority in 2024, could embark on populist macroeconomic policies such as a basic income grant to cling to power.
“What we can’t do is promise South Africans things we know we cannot deliver because we know we’re constrained by the availability of resources.
“We cannot allow the excesses of today’s generation to leave future generations with massive debt that they must then carry and there’s nothing to show for it. We are going to be faced with a situation where they will rightly come and spit on our graves and say that ‘you lived excessively and this is what you have left us with’,” Kganyago said.
SA has been trapped in the longest downward phase of the business cycle since 1945, which has led to one of the highest unemployment rates in the world. This has triggered debate that the Bank could play a role in addressing unemployment.
There are choices that have to be made about [unemployment]. Do we say the minimum wage should not be more than this so that more people can be employed?
— Lesetja Kganyago, Reserve Bank governor
But Kganyago, in a wide-ranging interview, dismissed the idea. While he welcomes debate about the Bank, society’s expectations should be tempered as the Bank has few levers to pull and risks straying too far from its core mandate of safeguarding prices and financial stability.
“There are choices that have to be made about [unemployment]. Do we say the minimum wage should not be more than this so that more people can be employed? Those kinds of decisions are not decisions that can be made by unelected officials.
“I worry that societies ... have inflated expectations of what central banks can do. I worry that institutions ... designed for a particular purpose could be piled up with additional responsibilities they are incapable of executing because they have been successful in what society had asked them to do,” he said.
President Cyril Ramaphosa is pushing through structural reforms including those aimed at attracting private sector participation in energy generation. They have the potential to create conditions for higher economic growth and put millions into jobs, but he has faced criticism for being slow to implement them, and the economy is likely to inch up just 0.2% this year, making Kganyago’s job tricky.
“The biggest worry of the central bank is the dilemma that we face: elevated inflation in the context of a slowing economy because it makes the trade-off really difficult,” said Kganyago, who recently called for deregulation of energy and transport in a speech in the US.
“If deregulation is fit-for-purpose and could contribute to investment taking off why do we sit and debate it instead of making it happen?” If private sector participation in Transnet results in products moving, there is no reason to debate it.
If this works well, he said, it would bring inflation down, enabling “support for the economy with lower interest rates”.
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