South Africa’s economic growth challenges cannot be solved by monetary policy alone, but require contributions from government and society, South African Reserve Bank (SARB) governor Lesetja Kganyago said this week.

Kganyago was speaking at a public lecture held at Unisa’s campus, in Pretoria, and said a lack of economic growth in the country was mainly a structural issue.

Therefore, he stated that monetary policy would not create the skills needed to grow the economy; rather, this would have to take place in the realm of structural reform.

Kganyago lamented that the country did not have balanced and sustainable growth.

“With annual gross domestic product (GDP) growth rates under 1%, we barely have any growth. Indeed, adjusting for the increase in our population, we have been getting poorer for half a decade.”

Moreover, he noted that government’s debt-to-GDP ratio was moving steadily higher, and with bailouts for State-owned enterprises, there were real risks that the country would soon have one of the highest debt levels among its emerging market peers.

“Because we have borrowed so much from abroad, we pay a rapidly rising amount of interest to non-South African creditors and this is contributing to a large current account deficit, again one of the biggest in our peer group.”

Kganyago emphasised that there were real limits on what monetary policy could do to address the situation.

However, what it can do is to encourage inflation expectations at lower levels, lowering long-term interest rates, supporting investment and helping to finance a growing debt level.

“By maintaining a credible monetary policy and a short-term interest rate that compensates investors for risks, we help to maintain capital flow into South Africa,” noted Kganyago.

Moreover, he indicated that rate cuts, such as the 25 basis point cut to the benchmark repo rate announced earlier this month, provided some assistance.

“As our economics get more difficult, I worry that more people will choose to avoid making hard choices and pretend they do not need to be made, as if the SARB could just cut rates enough and we would all be happy,” said Kganyago.

He said central banks cared about growth and employment and that SARB was no exception.

He indicated that, while the SARB could deliver lower and stable inflation, balanced and sustainable growth also required contributions from many other parts of society and government.

Kganyago emphasised that the country needed to maintain prudent macroeconomic policies and needed to make further progress on a range of structural issues.

“Ultimately, prosperity cannot be created by a monetary policy setting interest rates. We are but one part of an orchestra, we are not the soloist – we are doing our best, but we can’t put on a show alone.” 

Kganyago also mentioned that South Africans had shown a keen interest in central banking, and welcomed this public discussion of monetary policy.

However, he emphasised that these interactions and debates had to be based on evidence, as problematic claims could be damaging to the economy when they send the wrong messages to investors both locally and abroad.

Kganyago indicated that this communication was a welcome change from the past, when central banking was secretive, as it engendered a culture of transparency and accountability, ensuring that the SARB was not exempt from democratic principles.