Finance minister Enoch Godongwana’s lack of enthusiasm for the proposed lowering of the inflation target from the current 3%-6% range is a reminder that the timing of economic reforms often matters more than their substance.
It is also a reminder of the importance to successful economic reform of a sound political foundation, without which reform is impossible. That’s partly because economic reforms often come with short-term pain and long-term, albeit uncertain, benefits.
Godongwana reportedly said last week that investors should not expect any announcement in the February budget on changes to the inflation target range, or the introduction of fiscal rule. He said he first wanted to see a plan to mitigate the economic and political costs that may accompany such reforms.
The minister’s comments talk to one of the most neglected aspects of economic reform — timing. It makes all the difference, a point made by Ashutosh Varshney, an India-born economist who is now based in the US. He wrote that scholars have generally assumed that reforms are, or tend to become, central to politics. SA is no exception.
But as Varshney argued in a 1998 paper, “Mass politics or rlite politics? India’s economic reforms in comparative perspective”, the assumption of the centrality of reform may not be right. This is because what matters is what else is “making demands on the energies of the electorate and politicians”.
Economic reform is relatively easy to push through when the electorate and politicians are preoccupied with other matters they consider more critical and “economic reforms may not cause the political opposition they otherwise would”.
Varshney’s point about what else is demanding the energies of politicians suggests that Godongwana and his boss, ANC president Cyril Ramaphosa, want to avoid another running battle, or a “political war” such reforms may trigger.
It may be that Godongwana and Ramaphosa have their eye on surviving possible internal challenges to the government of national unity (GNU), and are also looking ahead to the ANC’s national general council (NGC) meeting scheduled for July 2025.
The NGC reviews party policies and other issues between its national and elective conferences. The GNU is set to be a major point of discussion at next year’s NGC, so it wouldn’t make sense for Godongwana and Ramaphosa to open another battle front now.
Also, both the proposed lowering of the inflation target and the introduction of the fiscal rule have the potential to become issues of mass rather than elite politics, another factor Varshney discusses.
He describes elite politics as those issues that are debated by the bureaucracy, a parliament or a cabinet. Such issues include investment policies, tax breaks, stock market regulations and custom duties on imported cars.
Mass politics, which is triggered by issues that “unleash citizen passions and emotions”, takes place on the streets. He identifies three factors that can determine whether an issue triggers mass politics — how many people are affected by the policy, how organised they are, and whether the effect of the policy is direct, obvious and short-run, or indirect, subtle and long-run.
“The more direct the effect of a policy, the more people are affected by it and the more organised they are, the greater the potential for mass politics.”
Both proposed reforms have the potential to unleash the passions and emotions of citizens. The government has been under pressure for some time from civil society groupings because of budget cutbacks.
Part of their campaign efforts have been for government to introduce a basic income grant (BIG) as the second-best solution to the high levels of unemployment and poverty. A fiscal rule may be seen as a way of shutting down a BIG.
The other issue Godongwana’s comments flag is the relationship between politics and economics. Kaushik Basu, a former chief economic adviser to the Indian government, notes that of the two (politics and economics) politics is far harder to amend.
“Changes in economic policy are not gestalt matters and can be corrected as the nation trundles along, as long as the fundamental political foundation is sound,” wrote Basu in An Economist in the Real World: The art of policymaking in India.
His statement would suggest that the SA Reserve Bank’s proposal to change the inflation target range has come at the worst possible time, when SA’s fundamental political foundation is at its weakest.
It’s Ramaphosa’s last term, a period when any president is most vulnerable, and he is facing internal challenges that is likely to increase the deeper he gets into his term because of the GNU.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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