Reserve Bank governor Lesetja Kganyago. Picture: FREDDY MAVUNDA
Reserve Bank governor Lesetja Kganyago. Picture: FREDDY MAVUNDA

The SA Reserve Bank highlighted the country’s deteriorating fiscal circumstances, thanks largely to bailouts for ailing parastatals, as one of the main risks to the economy, in its latest monetary policy review released on Tuesday

This, as well as risks posed by the slowdown in global trade and the possibility of a global recession, could worsen an “already difficult domestic growth situation”, the Bank said.

Although the Bank typically prefers not to comment on fiscal policy, it underscored the effect that deteriorating state finances, along with issues such as policy uncertainty, are having on the ability of monetary policy to support growth. 

The Bank’s review comes as finance minister Tito Mboweni is due to give his medium-term budget policy statement (MTBPS) at the end of the month. Mboweni is expected to detail the effect additional support for state-owned entities (SOEs), particularly Eskom, and poor economic growth is having on government’s finances. 

Since the previous review, published in April, the fiscal picture “has deteriorated sharply”, the Bank said, adding that the government’s budget deficit is now expanding again.


Economists have warned that the government’s budget deficit could reach 6% of GDP. This is significantly higher than the 4.7% forecast for 2019/2020 in February’s budget.

Similarly, the debt-to-GDP ratio is also expected to worsen to about 58%, up from February’s forecast of 56.2%

The country’s potential growth rate had slumped to below 1% in the context of supply constraints — particularly electricity shortages — and depressed business confidence. Demand had also weakened, thanks to higher taxes and slowing wage growth among other factors, the Bank said. 

“But the economy has also been buffeted by supply-side shocks and sentiment is suffering from ongoing policy uncertainty,” the Bank said. “Where monetary policy enjoys margin for manoeuvre, weak demand is a problem that can be addressed with interest rates. Supply shocks and policy uncertainty, however, are beyond the reach of the SA Reserve Bank.”

There are risks that a change in the environment could force an “outright-tight” policy stance, the Bank warned. “To control these risks, SA needs reforms,” it said, which are likely to entail, “short-term pain ... The cost of postponing reforms further, however, is rising at an accelerated rate.”

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