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You can’t do an 'abracadabra with debt', says Reserve Bank's Kganyago

Jul 26 2019 13:48
Jan Cronje

Attempting to move debt from state-owned enterprises like Eskom to the SA Reserve Bank would in no way make the obligations disappear, and would only change who interest is paid to, governor Lesetja Kganyago said on Friday.

Kganyago was taking questions from the audience at the bank's annual general meeting in Pretoria. He was asked whether the bank would consider absorbing debt from struggling state-owned enterprises, such as Eskom, to create quantitative easing.  

The state power utility has a debt burden of about R440bn. Finance Minister Tito Mboweni on Tuesday tabled a Special Appropriations Bill in Parliament to allocate R59bn to Eskom over two years to stop it collapsing. 

Kganyago said the two necessary conditions for quantitative easing -  inflation and policy rates are also close to zero - were not present in SA. 

"Let me say that quantitative easing is not an option for South Africa at the moment," he said.

Kganyago said taking on debt by the Reserve Bank would simply be a bailout.

He said that, in theory, if the Reserve bank did decide to loan money to Eskom without collateral – which he noted was against the law – interest on the debt would still be payable.

"You can't make debt disappear like magic," he said. "You can't do an abracadabra with debt". 

"The only thing that would have changed would be ownership of that debt. Instead of Eskom owing some institutional investor or pension fund, they would now be owing the Reserve Bank. But that would be under circumstances where you have rogue governors, and I don't think you have any at the moment." 

sa reserve bank  |  lesetja kganyago
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