South Africa’s central bank seeks political stability
CB governor says country must sort out its political woes to kickstart reforms and thereby unlock economic growth
LONDON: South Africa must sort out its political problems in order to kickstart structural reforms and unlock economic growth, central bank (CB) Governor Lesetja Kganyago told Reuters.
Speaking on the sidelines of a conference organised in London by the Bank of England, Kganyago also said financial market inflation expectations seemed to be out of kilter with reality.
He added that he was happy with the South African Reserve Bank’s independence following a flurry of criticism earlier this year.
South Africa has fallen into recession in a year that has also seen corruption rows, infighting between potential successors to scandal-plagued President Jacob Zuma and the row over central bank independence.
Kganyago said that politics remained the key to economic improvement, especially as noise intensifies in the run-up to the ruling African National Congress (ANC) party’s leadership contest in December.
The ANC is riven by fighting between factions backing Deputy President Cyril Ramaphosa and former African Union head Nkosazana Dlamini-zuma as leadership candidates.
“Politics is at the heart; you can’t do structural reforms unless there is political certainty,” Kganyago said, adding this had impacted on consumer and business confidence, the latter being at its lowest since 2014.
“There needs to not only be clear communication of what policy is going to be, but also implementation that demonstrates where policy is going, that will take the uncertainty away.”
South Africa is also struggling with high unemployment, weak infrastructure and inefficient staterun firms. Its credit rating was cut to junk earlier this year by two of the top three ratings agencies.
And while the world economy is steadily recovering, South African growth remains anaemic - the central bank predicts the economy to expand just 0.6 per cent this year.
In contrast, the global economy could grow 3.5 per cent in 2017, the International Monetary Fund forecast.
“We need to raise that potential growth rate through structural reforms, which unfortunately are not in control of the central bank,” said Kganyago, noting that potential growth was now seen at 1.5 per cent compared to 4 per cent a few years ago.
“If you implement structural reforms I can guarantee growth will take off. We all know what the reforms are they just need to be implemented.”
Investors in South Africa were spooked earlier this year by a proposal to switch the central bank’s mandate to pro-growth from inflation and currency stability.