South Africa’s ruling ANC wants to expand the central bank’s mandate to ensure it plays a bigger role in supporting the economy, a change that may require a constitutional change that it alone cannot bring about.
“The Reserve Bank’s mandate needs to be expanded to meet the needs of the economy,” Gwede Mantashe, the head of the African National Congress, said in an interview in downtown Mangaung on Friday after the conclusion of the party’s conference. Although the decision has been made in principle, more detailed discussions are needed before constitutional amendments are tabled in Parliament, he said.
The ANC’s proposal comes as the economy struggles to recover from the coronavirus pandemic and an ongoing power supply crisis that is slowing production. The South African Reserve Bank implements its inflation targeting mandate in the interest of balanced and sustainable growth and has repeatedly stated that impediments to stimulating economic growth are not within the purview of monetary policy.
A vote to change the bank’s constitutional mandate would require the approval of two-thirds of MPs. The ANC only controls 58% of seats in the National Assembly, meaning it would need the support of opposition parties to push through changes. The opposition has obstructed previous attempts by the ruling party to amend the constitution to make it easier for the state to confiscate land without compensation.
While the Economic Freedom Fighters, the third-largest party, agreed with the ANC on the need to change the SARB’s mandate, the ruling party will not make any concessions to the opposition in exchange for its support for amending the constitution, Mantascha said.
“You have a proposal, bring it to parliament and mobilize other parties, and if they want, they come. If they don’t want to, then don’t,” he said. “We’re not going to rush it because we’re desperate.”
The ANC has tried to make changes to the SARB before. It ruled in 2017 that the government should take ownership of the privately held bank, but the process – which requires an amendment to the Reserve Bank Act and an agreement on the share price – has stalled.
The central bank is viewed by investors, corporations and rating agencies as one of the few pillars of institutional strength in an economy eroded by government bribery during the rule of former President Jacob Zuma. A 2017 proposal by the now-suspended Ombudsman Busisiwe Mkhwebane to change the bank’s constitutional mandate and limit its independence sparked concern before it was blocked by the courts.
Alternatively, Finance Minister Enoch Godongwana could seek to placate members of his party by emphasizing the need for flexibility in policy-making to Reserve Bank Governor Lesetja Kganyago.
Former Treasury Secretary Pravin Gordhan said in a 2010 letter to then-Governor Gill Marcus that monetary policy should be flexible and that inflation should be temporarily off-target in the event of price shocks. Although the directive was touted as a “new mandate,” analysts saw it as a validation of the central bank’s work.
The Reserve Bank hiked interest rates six times last year to stem the biggest global inflation shock in a generation, drawing criticism from labor groups and some politicians who said it should do more to support South Africans and the domestic economy . Kganyago has repeatedly said that price stability is sacrosanct, calling inflation a regressive tax that increases poverty and inequality.
South Africa needs to consider central bank models in other countries “and explore alternatives that we think are appropriate for our own situation,” Mantashe said.
–With support from Rene Vollgraaff and Khuleko Siwele.