Reserve Bank Governor Lesetja Kganyago said South Africa’s failure to rebuild the fiscal buffers it that had in place when the global financial crisis struck has weighed on the country’s ability to respond to the coronavirus pandemic.
In April, the government announced a R500 billion support package aimed at reigniting economic growth and supporting those worst affected by a lockdown.
That compares with a fiscal package of more than 800 billion rand in response to the global financial crisis, facilitated by a budget surplus and relatively low debt-to-gross domestic product ratio, Kganyago said Monday in an interview with radio 702.
“If ever there was a case as to why you should build your buffers during the good times, that was it,” he said. “Instead of rebuilding our buffers, we continued to live life as if we were richer than what we were and that was the problem getting into this crisis.
South Africa recorded its first budget surplus since democracy in 2007, and in the 2008 fiscal year, debt-to-GDP was 26.6%.
The National Treasury predicted in February, before the country’s first virus case, that the deficit would swell to 6.8% of GDP and that debt will increase to 65.6% of GDP in the fiscal year through March 2021.
The central bank was able to respond to the virus with “significant boldness” because it had monetary policy buffers in place, Kganyago said. The Reserve Bank and its inflation-targeting mandate have often come under fire, especially as it became clearer over the past two years that the MPC aimed to get price growth anchored close to the 4.5% midpoint of the target band.