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Ratings & Recession: A conversation with National Treasury on the road ahead

Deputy Minister of Finance, Sfiso Buthelezi said a debate around key concepts underpinning the South African economy, such as inflation targeting and the principle of willing buyer/willing seller is needed. 

Addressing a forum at the Gordon Institute of Business Science (GIBS), Buthelezi said economic policy should not be accepted as gospel truth, as it is dynamic: “Let’s not be intellectually lazy. We should examine the issues which must be discussed and allow the superior argument to win.”

In reference to Public Protector Busisiwe Mkhwebane’s recent report on the Bankorp lifeboat, Buthelezi said the independence of the South African Reserve Bank is enshrined in the Constitution, and should be respected. Treasury had not yet taken a view as to whether the public protector had gone beyond her mandate. 

However, he said that a broader academic discussion around the role of central banks and their contribution to economic growth was missing. 

“Inflation targeting is government policy and we are to it committed until it is changed. But it isn’t cast in stone. Raising interest rates chokes aggregate demand and growth, and when we are faced with an economic crisis of low growth, we have to ask whether the target is appropriate.” 

On the issue of land reform, the deputy minister said the policy of willing buyer/willing seller had not worked, but added that ANC policies were not driven by emotions. This is one of the policies that would be examined during the upcoming policy conference, he said, and a recommendation would be made to the National Conference at the end of the year.

Economic road ahead
Dr Thabi Leoka, economist at Argon Asset Management argued that there was a need to a better understanding of the role of the Reserve Bank, and that inflation targeting had been proven as the best route for an emerging market. “The link between inflation targeting and growth is very strong. There is a growth benefit to inflation targeting,” she added. 

Ayabonga Cawe, Presenter at PowerFM said many of South Africa’s persistent economic problems are structural, and that interventions should focus on creating long term stability. “We must have more nuance in the economic policy debate. If we don’t have these difficult discussions, the more unstable our future is likely to be.” 

Dr Mampho Modise, Chief Director for Strategy and Risk Management at National Treasury said South Africa had a lot of strengths to be proud of, such as a good fiscal policy track record. However, she said low growth would impact on tax revenue collections this year, making the task of striking a balance between growth and fiscal consolidation even more difficult. 

Collaborative solutions 
Dept Mininster Buthelezi said government was “under no illusion as to the gravity of the problems that our country faces. There is no confusion in government and Treasury that when all is said and done, we as government should do everything and anything possible to increase business confidence, which is at its lowest point.” 

However, he added that government, business or labour acting in isolation could not solve the difficult economic conditions. To this end, he called on business to stop using the concept of a trust deficit as an excuse. “It’s very important that we get business on board and they do their part. In our interaction with business, they keep coming up with ‘trust deficit’." He said business and government would be judged harshly by history if they did not work together. 

Dr Leoka reaffirmed this: “Treasury cannot take us out of a recession alone, neither can the Reserve Bank.” Rather, it would require all of the economic clusters within government, including the South African population and labor working together. 

“Recession and reform are difficult periods, but the benefits of a reform period will trigger sustained growth. We have to go through a difficult transition, which will involve the participation from everyone, in order to reap the benefits,” Dr Leoka said. 

Her advice to business to help bring the country out of recession was to step forward and not “tip toe and play it safe.”  
Politicians must also be aware of the terms they use, which may be seen as attacking business. “Use words that aren’t divisive, but are rather conducive to encouraging a healthy working relationship between all sectors,” she concluded. 

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