Posted on August 13, 2020
“South Africa’s debt situation is critical. And our rebound from lockdown is looking weak compared with other countries. As a country, we need to find a path back to fiscal sustainability and growth.”
This is according to South African Reserve Bank Governor Lesetja Kganyago who gave the keynote address at a webinar celebration of the partnership between the University of Pretoria (UP) and the South African Reserve Bank (SARB) on 12 August 2020.
2020 marks the centenary of the Faculty of Economic and Management Sciences (EMS) at UP. The centenary coincides with the 10th anniversary of Professor Nicola Viegi serving as the SARB Chair in Monetary Policy Studies in the Faculty’s Department of Economics. To celebrate the partnership of these two institutions, a webinar was hosted under the topic ‘Monetary Policy in the Shadow of COVID-19’, with a panel of thought leaders also discussing the future of economic policy in emerging markets.
The panel was made up of Dr Elias Albagli, Director of the Monetary Policy Division, Central Bank of Chile, Dr Elina Ribakova, Deputy Chief Economist at the Institute of International Finance, and Prof Viegi. The conversation was moderated by UP alumni, conversation strategist and global moderator Nozipho Tshabalala.
Kganyago’s address was based on inflation targeting and the impact this had on South Africa’s economy. He explained that SA had been part of an international community that has been experimenting with getting monetary policy right, and declared that the experiment had yielded positive results for the country.
He did, however, acknowledge that despite the gains that had been made, there was still work to be done.
“Today, there is a new generation coming of age, in very difficult circumstances. They have many questions – about the economy in general, and about how monetary policy fits into the picture. Some of the questions are asked in a fiery tone, and I think that young people are right to be angry. Not only have they been unlucky, reaching adulthood during one of the worst economic disasters in modern history, they are also now discovering that, over the past 10 years, South Africa has been accumulating debt at a rapid pace, faster than any big emerging market except Argentina. So, while the economy struggles to grow, and job creation remains elusive despite the spending, there is a heavy burden of debt for future generations to carry. Justified though this anger is, we need to channel that energy into positive action. We also need to guard against making policy mistakes that could sink us into deeper trouble,” he said.
In her remarks, Dean of the EMS Faculty Professor Elsabe Loots said the COVID-19 pandemic has caused serious damage and policymakers now need to come up with solutions to help economies recover.
“The extent of the pandemic caught us by surprise. The world was initially, and rightfully so, concerned about the spread of the virus, and its impact on the health of citizens and healthcare services. The economic consequences of the pandemic are now on the top of the agenda of policy makers and governance institutions. It is clear that economic policy responses and manoeuvring will determine how countries and the world economy will recover from such a devastating event,” she said.
Vice-Chancellor and Principal at UP Professor Tawana Kupe said the calibre of graduates produced by the institution will not only be able to withstand the impact of COVID-19, but they will also be an integral part of finding new paths.
“Beyond COVID-19, our graduates will still be in that space, making a contribution to the new pathways we need to find, to create new, inclusive and sustainable economies, and to create new, inclusive and sustainable societies that respect the use of resources and respect nature,” Prof Kupe said.
He added that one of the ways the University is able make this happen is through industry-funded chairs, such as the SARB chair, that enable significant training and cutting-edge research that translates into policy.
In the panel discussion, participants shared their opinions of the governor’s remarks, as well as what they think the future of economic policy in emerging markets is.
Dr Ribakova said in thinking about the current situation, it is important to make the necessary distinction between a pandemic, and a financial crisis.
“We are talking about a global pandemic, and not a global financial crisis, these two things are different. It’s not a shock that came from financial mismanagement or macroeconomic mismanagement but rather from a health issue. The question is now whether it is time for new tools, and how they can be used in a time of crisis,” she said. Dr Ribakova added she felt reassured by the consistency of the message from the SARB.
Prof Viegi, on the other hand, said discussions on the limitations of monetary policy in SA are vital, and should be had openly.
“In SA it is particularly important to discuss openly about monetary policy and what monetary policy can and cannot do. I think inflation targeting has been a good framework because it gives SA a lot of flexibility of intervention. Inside inflation targeting there is a lot of scope to also introduce new tools and instruments as long as they are compatible with long-term objectives,” he said.
Dr Albagli shared insights on how the Central Bank of Chile was handling this time of instability. He said what remains important is the coordination of policy.
He highlighted “the importance of coordination between monetary policy and fiscal policy, but always maintaining independence between the two sources of these policies”.
Watch the full conversation:
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