Policy priorities lie with urgent economic reforms

This story is sponsored

South Africa’s basic policy priorities now lie with urgently implementing overdue economic reforms and ensuring security of electricity supply to boost investor confidence, says NWU Business School economist, Professor Raymond Parsons.

“The decision by the Monetary Policy Committee (MPC) to leave the repo rate unchanged in the present economic circumstances is disappointing. Although the MPC has reduced interest rates substantially so far this year — as a result of the prolonged Covid-19 lockdown — the economic outlook is now even bleaker than previous forecasts made by the Treasury, the South African Reserve Bank (SARB) and many private sector economists about economic prospects in 2020.”

Parsons says to not cut the interest rates further at a time when, to quote President Cyril Ramaphosa this week, “the economy and society have suffered a great devastation” is therefore not a helpful or responsive judgement call.

“Global factors and the shock collapse in gross domestic product (GDP) growth in South Africa in the second quarter of 2020 created the need and space for more support from monetary policy, albeit modest. The MPC itself has now reduced its inflation forecasts as well as its growth outlook for 2020 and beyond.


“Even though the Covid-19 lockdown is now positively at alert level 1 and the economy will indeed slowly recover in the second half of 2020, GDP growth for the year as a whole could still be as low as -10% — even worse than the MPC’s latest forecast.”

Parsons explains that economic recovery, not inflation, is clearly the immediate problem. “This seems not well captured by the quarterly projection model, upon which the majority of the MPC members have apparently relied for their decision.”

He says business and consumer sentiment would thus have both benefitted from yet lower borrowing costs, with the psychological impact being as important as the real one in the present depressed economic conditions.

“In addition, businesses (especially SMMEs) that hold part of their stock in trade with borrowed money are sensitive to changes in interest rates. Cheaper financing of stocks would therefore have provided an extra basis for a revival of trade in the months ahead.”

Parsons says it remains true, as the SARB governor again emphasised, that monetary policy alone cannot turn the economy around. “It is not a major growth catalyst, and with the reality of continued Eskom load-shedding it is inevitable that the efficacy of interest rate cuts will be muted.”

He says the urgent implementation of pro-growth structural reforms and a guarantee of energy security are where South Africa’s policy priorities must now mainly lie, to build confidence and place the country on a path of investment and job-rich growth.

About Mail & Guardian Sponsored Stories

The Mail & Guardian’s sponsored stories are produced in association with paying partners. We work closely with our partners to ensure all stories meet our standards of editorial quality, and offer information of value to readers.

If you would like to speak to our team, please contact us at this email address.

Related stories

The financial decisions made during your life journey, and their impact on your retirement outcome

The longer you save towards retirement the larger your retirement savings are expected to be due to the effect of compounding interest

Expert financial advice still recommended – especially in uncertain times

A financial advisor is an expert who will help you to protect your wealth and make a realistic plan when unexpected events threaten your wellbeing

What is a virtual card, and how does it work?

A virtual card lets you pay online without ever having to take your card from your wallet or exposing your actual account information

Itec launches new partnership to grow Mpumalanga footprint

Itec Mpumalanga is a partnership with established regional ICT provider Firmlinx, which operates across the Mpumalanga province

A strengthening case for asset finance

This is a rising trend across capital-intensive industries and has gained significant traction in these sectors over the last two years

The Bentley Mulsanne – the end of an era

The Mulsanne is the culmination of all that we at Bentley have learnt during our first 100 years in producing the finest luxury cars in the world
Advertising

Today's top stories

Inside the illicit trade in West Africa’s oldest artworks

Nok terracottas are proof that an ancient civilisation once existed in Nigeria. Now they are at the centre of a multimillion-dollar, globe-spanning underground industry — and once again, Nigeria is losing out

Emery Mwazulu Diyabanza: Liberating Africa from land of liberté

The cultural and political activist is on a quest to bring looted treasures back home

Entrepreneurs strike Covid gold

Some enterprising people found ways for their ventures to survive the strictest lockdown levels

Ithala backs its embattled chairperson

Roshan Morar is being investigated in connection with KwaZulu-Natal education department backpack sanitiser tender worth R4-million and a batch of face masks that vanished

Dirty air kills 476 000 newborns

In 2019, two-thirds of infant deaths caused by pollution were in sub-Saharan Africa
Advertising

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday