[ad_1]
Reserve Bank Governor Lesetja Kganyago.
- Reserve Bank Governor Lesetja Kganyago has warned that being
fiscally reckless will cost SA higher debt-service payments. - Some in the ANC fear a repeat of the deadly violence of 2021 if social spending programmes are axed.
- An ANC spokesperson says government is working to balance
cost containment measures while ensuring social assistance does not suffer. - For more financial news, go to the News24 Business front page.
South Africa is strapped for cash and the Reserve Bank has a
stern warning for the ruling African National Congress: You can’t spend your
way out of trouble.
“Deteriorating fiscal risks lead to higher interest
rates,” Reserve Bank Governor Lesetja Kganyago said on Thursday after
holding interest rates at 8.25%. “Foreigners will want to be compensated.”
South African government bond yields have climbed above 12%
in recent months even as the country’s inflation rate has declined to 4.8% from
above 7%, as investors weigh threats to the public purse. The central bank aims
for inflation at the mid-point of its 3% to 6% target range.
Tax revenues fall short of spending and debt issuance to
make up the gap has boosted yields. The National Treasury wants austerity
measures but faces opposition from others worried about public unrest ahead of
next year’s election, in which the ANC risks losing its majority.
Unsustainable
“Government spends more than it earns from taxes. We
spend as a nation more than we produce. We import more than we export,” said
André Roux, head of the Futures Studies programme at Stellenbosch Business
School. “These kinds of deficits cannot be sustained for a long period.”
Party leaders meet in October to hammer things out and
Finance Minister Enoch Godogwana, who presents a budget update on 1 November,
will be under intense pressure to go easy from other ministers. The fallout
over proposed cost containment measures is believed to be a contributing factor
in the delay of the budget, which ordinarily happens in late October.
READ | Why the hold on interest rates is good news – and bad
news
Some in the ANC fear a repeat of the deadly violence of 2021
if social spending programmes are axed, in a country where millions live in
chronic poverty alongside conspicuous wealth and the unemployment rate is above
30%.
Kganyago, who under the constitution is granted operational
independence from the government in setting rates, made it plain that being
fiscally reckless will cost South Africa higher debt-service payments, leaving
even less money to go around.
Likening investor appetite to eating a slice of bread, he
said they’ll want a spread “whether it’s butter, jam or whatever” and
it will get pricey if the fiscal picture darkens.
“Foreigners are not prepared to eat the bread on its
own. They would want to have the spread added and that spread had better be
sufficient for them to buy it,” he told a press briefing following the
interest-rate decision.
READ | Reserve Bank keeps rates on hold, but two members
vote for a hike
His colleague, Deputy Governor Kuben Naidoo, offered a less
colourful but more direct explanation of the trade-offs being faced by the
government as it tries to balance competing demands.
“In the normal course of events in the business cycle,
weaker fiscal does lead to tighter monetary policy,” he told the
reporters. “A looser fiscal stance makes the work of monetary authorities
more difficult.”
ANC spokeswoman Mahlengi Bhengu-Motsiri said the government
was working on how best to balance the demands of keeping the country working
while cushioning those at risk in the community.
“The governing party has got to be able to explain to
South Africans about how we are using cost containment to protect investment
and consumption to secure jobs, to make sure that social assistance doesn’t
suffer,” she said.
The spokeswoman’s comments are a climb down from the party’s
economic boss, Mmamoloko Kubayi, who told local newspaper Mail and Guardian
that the National Treasury had sought to usurp powers from the president and
his executive.
“We were shocked when we saw the letter; we just
believe that consultation would have helped the matter,” Kubayi said of
the earlier proposed austerity measures.
“If you look at the official letter, it took away the
constitutional power of the president and took it into the National Treasury,
which was unfortunate and illegal.”
Tension over spending is nothing new in South Africa, but
sharpening the debate this time around is anxiety over what’s shaping up to be
a very tough election next year for the ruling party.
Public frustration is simmering over rolling power cuts and
the ANC’s repeated failure to deliver on basic public services. Opinion polls
see them dipping below 50% control of parliament, which would force them to
forge a coalition alliance with one or more of the smaller parties.
“There is a big concern about the erosion of the ANC’s
electoral power at national level,” said Sithembile Mbete, who lectures in
political science at the University of Pretoria. “The stakes I think are
higher for the party than they have ever been.”
[ad_2]
Source link