SA example of dangers of govt borrowing - Kganyago

On Tuesday, Kganyago delivered the 2023 Michel Camdessus Central Banking Lecture at the International Monetary Fund in Washington.

Kganyago spoke about the contribution of capital flows to sustainable growth in emerging markets, highlighting that attitudes to capital flows have been more critical outside of the IMF.

At the same time, Kganyago also reminded policymakers not to ignore the dangers of government borrowing.

"Responsible policymakers never forget that fiscal debt is risky. But the nature of policy discussions is that while many claims are valid, some points get more emphasis than others.

“In the past decade, one such point was that fiscal consolidation hurts growth and is, therefore, self-defeating. Another was that higher government debt levels were safer than previously thought.

“I have personally observed these claims justify sustained fiscal slippage in South Africa," said Kganyago.

He added that debt sustainability needs a more responsible set of narratives around fiscal risks.

"We also need to think more clearly about allocative efficiency. One of the strongest lessons I have learnt as a policymaker is that poor countries are poor not simply because they do not have money but because they do not use money effectively," adds Kganyago.

Kganyago reminded policymakers that the intelligent use of capital flows could lead to potential economic growth.

"For countries where investment opportunities exceed local savings rates, doing without capital flows means giving up on significant growth.

“It is not an attractive strategy. A better one is to welcome capital flows, control risks and nurture institutions that can deliver productive investment choices. That applies to climate finance, too," said Kganyago.

"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.”

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