By Prinesha Naidoo
JOHANNESBURG - South Africa should implement its National Development Plan rather than draft a new strategy to revive an economy forecast to contract the most in almost nine decades, according to Reserve Bank Governor Lesetja Kganyago.
“You will hear a narrative that says all the plans of the past will not work, we need a new plan,” Kganyago said Wednesday in a webinar organized by the Cape Town Press Club and Konrad Adenauer Foundation. “Excuse me, we didn’t implement any of the plans of the past.”
His comments come amid increasing pressure on the government to announce a recovery strategy after damage wrought by the coronavirus and days after Busi Mavuso, the chief executive officer of Business Leadership South Africa said an economic plan presented by state officials to the private sector and labor-union representatives was “fragmented and uncoordinated.”
While Africa’s most-industrialized economy has formally adopted five blueprints to boost gross domestic product and job creation since the African National Congress won the first all-race election in 1994, it has struggled to get most these passed powerful vested interests to implement them.
Even reforms proposed last year in a National Treasury policy paper, forecast to lift economic growth by two to three percentage points and create more than one million jobs over a decade, remain dormant. Most of the Treasury’s suggestions were in line with President Cyril Ramaphosa’s election manifesto and the National Development Plan that he co-authored.
Critics of the Reserve Bank have heightened calls for even more interest-rate cuts and aggressive quantitative easing to bankroll the state, which was already under severe financial strain before the pandemic hit. Kganyago has repeatedly said monetary policy alone can’t help and warned against unrealistic expectations about what the central bank can do to prop up the economy.
“The way these questions are phrased sounds like the objective of monetary policy is to cut rates. They’re wrong,” he said. “Monetary policy protects the value of the currency by containing inflation and monetary policy also smooths fluctuations in demand around potential trend growth.”
Muted price growth has allowed the central bank to lower the benchmark interest rate by 300 basis points this year, taking it to the lowest level since it was introduced in 1998. That means the real repurchase rate is negative relative to the bank’s inflation forecast, Kganyago said.
The central bank also relaxed accounting and capital rules for commercial banks to release additional money for lending and bought South African government debt in the secondary market, helping to bring down borrowing costs in the domestic bond market.
The Reserve Bank’s response to offset the damage caused by the virus has been “speedy, aggressive and unprecedented,” and the full effect will likely be felt as the economy continues to reopen, Kganyago said.