By Lehlohonolo Lehana.

Lesetja Kganyago is well known for his impeccable credentials first as a policy maker in South Africa's National Treasury and since 2014 as Governor.His stance as the guardian of central banks independence has been always a strength, and even more so in current times. What makes him special for all of us at the IMF and me personally is that he is an important part of the Fund's family and the Fund’s history. From 2018 until 2021, during an extraordinary period, Lesetja served as Chair of the IMFC. During the Covid crisis that meant chartering a course for fiscal and monetary policy during exceptional uncertainty and taking decisive actions to support the Fund’s membership, said IMF Managing Director, Kristalina Georgieva, during her opening remarks at the 2023 Michel Camdessus central banking annual lecture.

Central bank governor urged nations where investment opportunities exceed local saving rates to cautiously embrace capital flows, rather than shun them and miss out on the potential economic growth benefits.

A better approach "is to welcome capital flows, control risks and nurture institutions that can deliver productive investment choices. That applies to climate finance, too," Kganyago said. "We need to remain optimistic about capital flows and vigilant about the risks, rather than pessimistic about the flows and allergic to the risks, or naïve about the flows and blind to the risks."

Giving the 2023 Michel Camdessus central banking annual lecture at the IMF in Washington on Tuesday, Kganyago said that when misused, capital flows can increase government debt and erode potential growth.

"We need to remain optimistic about capital flows and vigilant about the risks, rather than pessimistic about the flows and allergic to the risks, or naïve about the flows and blind to the risks."

South Africa's domestic savings rate is just 13%, the lowest level since at least 1980. The IMF projects that investment will equate to 16% of gross domestic product this year, far below the ratio needed for adequate growth.

Recent capital flows into South Africa have permitted the build-up of a large sovereign debt position, which has eroded potential growth, the governor said.

Gross government debt stood at 70.9% of GDP for the year through March 2023, from 23.6% in 2008-09.

Debt accumulation can weaken institutions if money is used to fund systems of patronage and corruption, skilled and diligent public servants are driven from their posts, and private sector firms redirect their efforts from productive enterprise, according to Kganyago.

He proposed that central banks accumulate foreign reserves to hedge against risk stemming from the public sector balance sheet and that central banks' independence be safeguarded, enabling them to protect those assets against spending demands.

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Video Courtesy of IMF.