Reserve Bank Governor sends a message to South Africa’s government

South Africa needs to implement structural and governance reforms at pace to address the country’s lacklustre economic growth and the government’s deteriorating financial health. 

These reforms are needed to address the problems behind South Africa’s poor economic performance over the past decade, when its economy averaged an annual growth rate of 0.8%. 

Increasingly, these reforms must be extended beyond the electricity and logistics sectors to include municipalities and local governance. 

In addition to these reforms, South Africa needs to target a lower inflation rate and implement fiscal policies that prioritise debt stabilisation. 

This is feedback from Reserve Bank Governor Lesetja Kganyago, who recently outlined some of the things South Africa has to get right to revive its stagnant economy. 

Speaking to the National School of Government, Kganyago repeated his call for a lower inflation target and improved management of the government’s finances. 

“To conclude, there are clear microeconomic problems behind South Africa’s unfavourable growth performance. The proper response to this is structural and governance reforms,” Kganyago said. 

“It is vital that these continue at pace. There is no chance we can develop a flourishing economy without reliable infrastructure and functional municipalities.” 

Put simply, South Africa needs its trains to run and cities to function to achieve faster economic growth in the coming years. 

Kganyago emphasised that the country’s deteriorating financial health cannot be separated from its stagnant economy, as they are intertwined. 

Without stabilising the government’s debt burden and improving its spending quality, South Africa’s economy will not grow as fast as it needs to. 

At the same time, without faster growth, the government will not be able to sufficiently address its debt burden and tackle unemployment. 

This is what the government’s current reforms and the National Treasury’s fiscal consolidation aim to achieve. 

As part of this, Kganyago called for a lower inflation target, which promises immense benefits for the local economy, including faster growth, easing the cost-of-living, and reduced debt-servicing costs. 

“With a lower inflation target and fiscal policy that firmly prioritises debt stabilisation, we could achieve sustainably lower interest rates,” Kganyago said. 

“This would give monetary policy more space to support growth, and it would give fiscal policy respite from high debt costs.” 

“South Africa is a macroeconomic underperformer. But, with the right reforms, we could do much better.”

South Africa’s underperformance

Before he outlined the potential remedies to South Africa’s ailments, Kganyago outlined the country’s poor economic performance over the past decade. 

Kganyago said the country has been one of the worst-performing economies around the world in the past ten years. 

“As you know, economic growth in South Africa has been weak, averaging a mere 0.8% annually over the past ten years,” Kganyago said. 

“This growth performance is worse than that of 87% of other economies. The country’s growth was worse than 90% of economies in 2024.”

The handful of countries that have performed worse than South Africa over the past decade have been those that suffered major disasters, such as war or macroeconomic collapse. 

“Given that we have had peace and basic macroeconomic stability, South Africa’s growth is extremely disappointing,” Kganyago said. 

“What about inflation? Here again, we underperform. Our average inflation rate over the past ten years is 4.9%. This is not a catastrophe. Venezuela and Zimbabwe have excessive inflation rates of 9,000% and 251%, respectively.”

However, Kganyago explained that compared to other countries, South Africa’s inflation rate is elevated, with the country’s price level being more than 60% higher than in 2015. 

This makes South Africa’s economy highly uncompetitive in global markets, with the cost of producing goods increasing relatively quickly compared to other countries. 

“In a nutshell, we are in the bottom 10% of the class for growth and the bottom 30% for inflation. This is not the kind of country report you want,” Kganyago said.

At the end of July 2025, the Reserve Bank cut its forecast for South Africa’s economic growth once again, taking it down to 1% from 1.2% just two months ago.

This was mainly due to the impact of tariffs on South African exports to the United States, which is expected to impact several key industries. 

However, this lower growth projection can also be attributed to continued supply-side challenges, such as logistical inefficiencies and limited electricity generation in South Africa.