29/10/2018. Govenor Lesetja Kganyago speaks during the Monetary Policy Forum at the South African Reserve Bank in Pretoria.
Picture: Oupa Mokoena/African News Agency (ANA)
29/10/2018. Govenor Lesetja Kganyago speaks during the Monetary Policy Forum at the South African Reserve Bank in Pretoria. Picture: Oupa Mokoena/African News Agency (ANA)

Reserve Bank governor hails Mboweni's plan to reduce debt

By Kabelo Khumalo Time of article published Nov 4, 2018

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JOHANNESBURG - The rand  strengthened on Friday as SA Reserve Bank (Sarb) governor Lesetja Kganyago hailed new Finance Minister Tito Mboweni’s commitment to reduce government’s appetite for borrowing. 

The rand moved to R14.27 against the US dollar from the R14.47 it was bid at overnight after Kganyago told the South Africa Tomorrow Conference in New York on Friday morning that be backed Mboweni’s views on the reduction of the fiscal deficit.

Kganyago said South Africa needed to ensure that borrowing was productive.

 “With rising long-term interest rates, credit rating downgrades and tax increases, the case for fiscal stimulus based purely on spending aggregates are well past its sell-by date,” Kganyago said. “We are clearly well past the point where we could hope to crowd in investment simply by raising spending and boosting demand.” 

In his maiden Medium Term Budget Policy Statement (MTBPS) Mboweni indicated a fiscal deficit of 4 percent of gross domestic product (GDP) for the 2017/18 financial year.  

Mboweni warned that the country’s debt to GDP that is projected to stand at 58.5 percent in 2021/21 might force the country to seek a bailout from the International Monetary fund if it breaches the 60 percent mark. 

Kganyago said the consequence of state capture was a large decline in business and consumer confidence which contributed to investment stagnating over the past five years. 

“State capture’ has also been a major factor in our fiscal woes, both because it burdened the state with corrupt and fruitless expenditure, and also because it is seriously undermining its capacity to collect taxes.” 

Kganyago said the country could expect better growth in the medium term with investments expected to increase above the current 20 percent mark of the gross domestic product (GDP). 

He said a better household balance sheets would also unlock growth and open up a scope for further reforms. 

Mboweni last week insisted that the cash burning South African Airways (SAA) be privatised or shut down this week drew both scorn and applause.  

The national carrier incurred R5.6 billion in losses during 2014/15, R1.4bn in 2015/16, R5.5bn in 2016/17 and R 5.7bn in 2017/18.  Taxpayers have bailed out the company to the tune of R10bn over the past two years

But the privatisation talk has already met resitence from trade union federation Cosatu, an ally of the ruling ANC.

Cosatu spokesperson Sizwe Pamla said it was unacceptable for Mboweni to tell a foreign audience that SAA was of no value to the state. 

Pamla said Mboweni had acted outside the alliance stance on privatisation.

 “Mboweni’s sweeping statement is unacceptable and outrageous and can only be said by someone, who is looking for easy applause and nods of approval from his neoliberal overlords”.  

But the privatisation stance was supported by the business community.

Former Investec chief executive Stephen Koseff said the time had come for the state’s hand to be forced to invite private sector participation in the ailing state companies.

 “Why do we need SAA? We can outsource the flag to someone else and they will run it for us much better. Airliners like Emirates and Qatar would be happy to take over SAA,” Koseff said. 


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