Calls to drop inflation targeting, loosen rates are inconsistent with policy, says Mboweni
Submissions for the Treasury’s economic strategy document proposing that SA dispense with inflation targeting or embark on looser monetary policy, have been given short shrift by finance minister Tito Mboweni.
In his opening remarks at an economic colloquium on Thursday Mboweni said he had given guidance to Treasury officials that ideas that were “internally inconsistent with what we are trying to achieve” should not be taken on board.
He specifically gave examples of proposals to abandon inflation targeting to boost the economy, or demands that the Treasury instruct the SA Reserve Bank to employ looser monetary policy and cut interest rates.
“That is not consistent with our mandate, we can’t do that,” Mboweni said.
While these ideas could be given “good ventilation”, he said, they are inconsistent with the government's policy framework.
The Treasury document, which was released in August, proposed a range of reforms that could be implemented to stimulate economic growth.
The Treasury called on the public to make submissions that would be considered in the drafting of an updated version. The expectation is that the updated document will be presented with the upcoming medium-term budget policy statement, according to Mboweni.
But the document drew criticism from the ANC’s alliance partners, notably the SA Communist Party and Cosatu, and again underscored tensions in the alliance over the direction of economic policy.
There is also internal tension within the ANC, after the party resolved to change the mandate of the central bank to cater for job creation and economic growth, and to nationalise the bank.
In June the party had to back-pedal when secretary-general Ace Magashule announced that the ANC wanted the government to explore “quantity easing”. This was a mistaken reference to quantitative easing — a policy that would amount to the Reserve Bank printing more money — to alleviate “intergovernmental debts” and fund development spending. In the wake of the confusion President Cyril Ramaphosa announced that aims to nationalise the banks were “not prudent”.
Mboweni also highlighted the problem of implementation and the difficulty of getting economic actors in the economy “to pull in the same direction”.
“One of the biggest constraints to economic growth in SA is lack of implementation on those things which have been decided upon,” he said. This speaks to “the capacity and capability of the state to implement”, he said.
He gave the example of the criticism levelled at anyone who questions the extension of collective bargaining agreements to non-parties, or the appropriateness of the level of the national minimum wage. “They don’t want to talk about it, and you get stuck,” he said.
Both policies are strongly supported by the ANC’s labour allies.
Thursday’s event included a range of local economists, academics and government officials, as well as a number of the members of the newly appointed special economic advisory council named by Ramaphosa.
It came as SA awaits the medium-term budget policy statement, which Mboweni announced would likely be moved a day earlier than planned, to October 29.
The timing of the medium-term budget had been moved once already from the usual, second last week of October to the 30th of the month. The step was intended to cater for the international travel commitments of the president.
But Mboweni said it is likely now to take place on the 29th as Ramaphosa may be out of the country. Mboweni made the announcement to “avoid any rumour-mongering in the market,” he said.
The medium-term budget policy statement is being keenly watched by business, investors and ratings agencies. Mboweni is expected to outline the state of the government’s finances after additional spending pressure to shore up troubled power utility Eskom.
Poor economic growth and lower tax revenues are also expected to weigh on the budget.