South African Reserve Bank governor Lesetja Kganyago is urging the government to stick to its debt reduction plan ahead of Wednesday’s Medium Term Budget Policy Speech (MTBPS), Bloomberg reports.
He was speaking at a forum hosted by former President Kgalema Motlanthe’s foundation on Friday.
Kganyago’s comments come amid growing pressure for the government to convert the R350 Social Relief Distress grant into a basic income grant.
There’s also pressure from public servants for inflation-proof salary increases.
“Fiscal consolidation is necessary and needn’t be contractionary,” Kganyago said
“Stabilizing debt would reduce risk and allow for lower interest rates across the yield curve. It would also avert fiscal dominance, where central banks lose the ability to protect the value of the currency because of fiscal failure.”
There are expectations that the MTBPS will prioritise policies that will grow the economy, introduce fiscal reform and give more clarity about Eskom’s debt while avoiding political pressure to manage economic distress by spending on social relief or public sector wages although inflation is spiking and growth is depressed.
Recent success in rebuilding fiscal buffers means the country is better positioned to navigate a deteriorating global economic outlook, Kganyago said in an interview with Bloomberg last week.
The publication also reports there is a shortfall in the primary budget.
South Africa’s most critical fiscal anchor, narrowed more than expected in the year through March 2022, and the ratio of government debt to gross domestic product also beat the National Treasury’s estimates, central bank data show.
It will have to be a delicate balancing act for Finance Minister Enoch Godongwana come Wednesday.
“All eyes will be on Godongwana to see if he will prioritise pragmatic policies that stimulate real business growth and job creation, instead of bowing to populist pressures that prioritise social spending but have no lasting positive impact on the country,” Maarten Ackerman, chief economist at Citadel told The Citizen last week.
Compiled by Narissa Subramoney with additional reporting by Ina Opperman