Lesetja Kganyago. Picture: PUXLEY MAKGATHO
Lesetja Kganyago. Picture: PUXLEY MAKGATHO

SA cannot take huge risks that drive up inflation and the country’s borrowing costs in order to boost growth and job creation, warns Reserve Bank governor Lesetja Kganyago.

“People ask, ‘wouldn’t it be worth taking big risks, having more inflation, borrowing as much as we can get away with, if only we could get some growth and some jobs?’ They even say, ‘in a highly unequal country like SA, wouldn’t it be politically safer to take macroeconomic risks to try and get poverty and unemployment lower?’ But this is wrong,” he said at an Association of Black Securities and Investment Professionals conference in Johannesburg on Friday.

SA has implemented a policy of fiscal transparency that has prompted a clear message from analysts, investors, the ratings agencies, international organisations and others “that SA needs to maintain budget responsibility and get state-owned enterprise risks under control”, which is a priority government has reiterated, he said.

People who want to engineer a short-term boom, and ignore the long-term costs, won’t like it when the long term shows up, which history suggests normally starts after about two years. If you don’t think inflation matters, go try some
Lesetja Kganyago

This comes before the medium-term budget policy statement (MTBPS) next week, when newly appointed finance minister Tito Mboweni will paint the latest picture of the country’s finances.

Kganyago said macroeconomic stability becomes a concern only when “you haven’t got it”.

“People who want to engineer a short-term boom, and ignore the long-term costs, won’t like it when the long term shows up, which history suggests normally starts after about two years. If you don’t think inflation matters, go try some,” he said.

He said SA’s interest rates are close to record lows, with the repo rate currently at 6.5%. Government spending has increased faster than inflation every year. Real austerity could see interest rates of 65%, such as in Argentina, as well as the cutting of pensions and grants and the firing of government employees.

“We should avoid reckless economic policies unless we want to risk putting our society through that pain and stress,” he said, warning that inequality, poverty and unemployment are not reasons to gamble on stability.

“SA’s social challenges mean we need to be extra careful about managing the system carefully so it doesn’t blow up — not that we need to run the system as hot as we can get it and hope for the best.”

MenonS@businesslive.co.za

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