JOBURG - Faced with a budget deficit that’s likely to reach wartime levels, Finance Minister Tito Mboweni is rebuffing suggestions the reserve bank help plug the hole.
South Africa’s budget shortfall is forecast to exceed 10% of gross domestic product in the fiscal year through March 2021 as restrictions to curb the spread of the coronavirus weigh on economic activity and sap tax revenue. The largest gap on record was 11.6% of GDP in 1914, followed by 10.4% in 1940.
Mboweni, a former reserve bank governor, said on Twitter he is against printing money and wants the South African Reserve Bank to remain independent.
His comments came after Enoch Godongwana, the ANC's head of economic transformation, suggested the bank help finance development and infrastructure through the creation of a R500 billion fund, while Deputy Finance Minister David Masondo has said he would support direct central bank purchases of government debt.
With GDP set to contract the most in at least four decades, pressure on the Reserve Bank to play a bigger role in bolstering the economy is increasing. However, it has ruled out paying for government spending through loans.
“It would blur the lines between an independent central bank and publicly-elected office bearers,” deputy governor Kuben Naidoo said in a conference call Tuesday. “If we were to finance government directly, there would be no pressure on government to manage their costs in any way.”
This is fundamental because a King in ancient times tried to interfere with the National Treasury, a central bank of those days. The Chief of the Treasury refused to print money and was executed.The first principled stand by central bankers for independence. I am a central banker
— Tito Mboweni (@tito_mboweni) June 1, 2020