Bloomberg/Waldo Swiegers

Economy

SARB will not bail out South Africa’s state firms, says Kganyago

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In February, Public Enterprises Minister Pravin Gordhan said that at least seven state companies are either on their knees or touching carpet, following years of mismanagement and alleged corruption.

Sunday 09, June 2019

(Bloomberg) – The Governor of South Africa Reserve Bank (SARB) said that the central bank will not bail out the country’s troubled state-owned companies including power utility Eskom Holdings because it would fuel inflation.

Lesetja Kganyago, the Governor of SARB, said that the central bank will not consider stepping in because it will require printing cash and it is also prohibited by law to undertake unsecured lending.

“Where does the central bank get the money, we will have to print it for state companies to spend it in an economy where there is a lot of money chasing very few goods and that is the classic definition of inflation, it will not take long for inflation to really tick up,” Kganyago said.

According to Goldman Sachs Group, Eskom which has more than $30 billion in debt, is the biggest threat to the South African economy.

Bailouts by the Reserve Bank will not work because then not only would you have monetized the deficit, you have now sucked the central bank into making fiscal decisions,” Kganyago said.

The central bank, which seeks to anchor price-growth expectations close to the 4.5 per cent mid-point of its target range, has faced criticism from labour unions and some political parties in the past for not taking policy decisions to help boost economic growth and job creation.

Kganyago said that the South African version of modern monetary theory goes something like ‘the central bank can just take over the debts of the state-owned enterprises and make it disappear and then we are happy’ kind of thing.

TAGS : SARB, Pravin Gordhan, President Cyril Ramaphosa, Eskom, Lesetja Kganyago

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