KGANYAGO URGES GOVT TO STICK TO DEBT-REDUCTION PLAN

BLOOMBERG NEWS - South Africa’s central bank governor urged the government to stick to its plan to reduce debt, as the National Treasury prepares to deliver its medium-term budget policy statement this week.

“Fiscal consolidation is necessary and needn’t be contractionary,” Lesetja Kganyago said at a forum hosted by former President Kgalema Motlanthe’s foundation in southeastern South Africa.

“Stabilising debt would reduce risk and allow for lower interest rates across the yield curve. It would also avert fiscal dominance, where central banks lose the ability to protect the value of the currency because of fiscal failure.”

Finance Minister Enoch Godongwana is set to present his second medium-term budget tomorrow.

The Treasury is facing growing pressure to agree to demands by public servants for inflation-beating wage increases and extend a 350 rand ($19) monthly welfare grant that would hamper its plans to rein in the budget deficit and bring runaway state debt under control.

South Africa’s public finances deteriorated significantly during former President Jacob Zuma’s almost nineyear rule, when corruption became endemic and public-procurement budgets were looted. Loss-making state companies, including power utility Eskom Holdings SOC Ltd. received a series of bailouts and the government repeatedly failed to contain its wage bill. Zuma was forced to resign in 2018. Recent success in rebuilding fiscal buffers means the country is better positioned to navigate a deteriorating global economic outlook, Kganyago said in an interview with Bloomberg last week.