Economy is in State’s hands

Cape Town 101028. Deputy Finance Minister, Nhlanhla Nene is his 120 Plein Street office. PHOTO SAM CLARK, CA, Gaye Davis

Cape Town 101028. Deputy Finance Minister, Nhlanhla Nene is his 120 Plein Street office. PHOTO SAM CLARK, CA, Gaye Davis

Published Sep 21, 2014

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Johannesburg - If the economy needed more support, it would have to come from the government side and not from monetary policy, economists said in the wake of the imminent departure of Gill Marcus, the governor of the Reserve Bank.

They said she laid bare a plethora of problems facing the economy and rightly pointed out that these were outside the levers of the central bank. But the government lacked the will and continued with policy uncertainty.

The economists said policy direction was needed regarding the threat to sovereign downgrades, a depreciating currency, high unemployment, a ballooning current account deficit, low domestic output and labour unrest.

Chris Hart, an economist at Investment Solutions, said whoever took over from Marcus would be left to hang out to dry if there was no change of course by the government.

“The Reserve Bank has been part of Team South Africa on growth that has deteriorated through fiscal policy and not monetary policy,” he said.

It is expected Finance Minister Nhlanhla Nene will bring some clarity on this when he presents the medium-term budget policy statement on October 22.

The SA Revenue Service is under strain to intensify tax collections from a smaller pool of taxpayers regularly.

Exponentially, government spending surpassed R1 trillion in the 2012/13 fiscal year, almost double the R567 billion spent in 2007/08, according to data released by Statistics SA in June.

Hart said the Reserve Bank tried to put rates as low as possible. “The challenges the Reserve Bank is facing is strong inflation drivers, with weak economic drivers.”

Pieter Laubscher, an independent economist, said the Reserve Bank influenced inflation, while policy issues had to be resolved by the government.

“It is critical that the central bank remains in the hands of those [who are] independent, not populists who are easily influenced.

“Its decisions are governed by market forces. The bank needs someone with a good reputation for sound monetary policy,” he said.

Laubscher said the position of minister of finance had a bigger cycle than politics. “It is important that both the governor and the minister have credibility to fulfil their mandate without fear or favour because the economy is bigger than politics.”

Christie Viljoen, a senior economist at NKC Independent Economists, said whoever succeeded Marcus would have to think the same as her in terms of changes needed.

“Whoever is appointed must have quality and credibility. It would be a disaster if someone not known was appointed or came from the ANC hierarchy,” he said.

However, Viljoen said the appointment of Trevor Manuel, the former finance minister, would be a welcome surprise. “I can’t think of anyone on my part who would be opposed to the appointment.”

Hart said said there would be a synergy between Nene and the new governor.

“Nene has the Treasury behind him, while the Reserve Bank has a depth of talent. What has happened here is that we have gone on a fiscal policy direction that needs to be clawed back.

“We have growing internal dynamics that are not helpful.”

He said he wished he could have seen Marcus serve another term.

“I hope to see a handover made soon so that whoever is appointed can work alongside Marcus. A long period without an appointment will create uncertainty,” Hart said.

Business Report

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