Stop the impractical promises to SA and start with painful trade-offs, Kganyago says

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The South African Reserve Bank's governor Lesetja Kganyago says pursuing maximum employment is not the Bank's responsibility, nor is "monetising" the country's fiscal deficit. Picture: Supplied
The South African Reserve Bank's governor Lesetja Kganyago says pursuing maximum employment is not the Bank's responsibility, nor is "monetising" the country's fiscal deficit. Picture: Supplied
  • SA Reserve Bank Governor Lesetja Kganyago says policymakers need to make difficult decisions.
  • He says South Africa does not have the money to do everything society wishes.
  • He says no amount of monetary policy interventions can lower unemployment in SA.

SA's policymakers need to stop making promises to society that government can't live up to, and instead there must be difficult and painful decisions to prioritise spending, according to SA Reserve Bank (SARB) Governor Lesetja Kganyago.

Speaking on Twitter Spaces on Sunday night, Kganyago warned against "single-issue narratives" that want the central bank to solve all of SA's economic problems through monetary policies like quantitative easing.

He said pursuing maximum employment is not the SARB's responsibility, nor is "monetising" the country's fiscal deficit.

Kganyago said SA policymakers needed to be frank with society and stop making promises that do not make economic sense. People need to understand that there are trade-offs. He said the choices that the government makes today will have a long-lasting impact on some sectors and certain corners of society.

"We might be making decisions which look good today and benefit us today, but put a burden on the future generations... policymaking is about choices, society cannot have its cake and eat it," said Kganyago.

The governor said SA needed to realise that it does not have the resources to do everything the government or society would like to see happen.

From education to social development, grants and supporting businesses, the public purse is spread thinly across different priorities. So, Kganyago said, everyone needs to realise that there are only difficult choices to make.

'We don't need quantitative easing; we need structural reforms'

The governor said while some people talk about the SARB having the dual mandate of price stability and pursuing maximum employment, they need to realise that it's not low interest rates or printing more money that will create sustainable jobs.

What SA needs is to change its potential growth rate. And to do that, the country needs to make fundamental structural reforms.

"Giving the Reserve Bank the money, the responsibility, to drive the economy to maximum employment when all of those structural reforms are not taking place will be hoping against hope. And I do not think that it would be an appropriate thing to do," said Kganyago.

He said if all the other critical government institutions don't do what they are supposed to do efficiently, no amount of monetary policy easing can help SA.

As evidence that SA's unemployment cannot be solved by further lowering interest rates, Kganyago pointed out that interest rates are currently at historic lows. Yet, the country's unemployment rate has also risen to a historical high.

"Unemployment had risen because we had a Covid-19 shock. But let's also get things clear: when the Covid-19 shock hit our shores, this economy also had its own co-morbidities. We had structural faults that we have not dealt with that we know [about], that we have spoken about," said Kganyago.

He said because structural reforms come with painful trade-offs, this puts the challenge of managing contestation in society on the door of political leaders, not the central bank.

He said it was only through the structural reforms, that government is delaying, that South Africa's economy can start to support the creation and growth of businesses. And it is only when businesses create jobs, not government, that the country can begin to tackle the ticking unemployment time bomb meaningfully.

"It is through the creation of businesses that we will create jobs," he said, adding that the "national narrative" that SA just wants to create jobs was fundamentally flawed and showed no understanding of the jobs value chain.

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