South African Reserve Bank governor assesses emerging market resilience, identifies fiscal sustainability and growth gaps

The South African Reserve Bank published an address by Governor Lesetja Kganyago assessing how major emerging markets have become more resilient through central bank independence, inflation targeting, flexible exchange rates, larger foreign exchange reserves and stronger financial supervision. He cautioned that these frameworks have not resolved persistent fiscal vulnerabilities or delivered sustained growth across all emerging markets. South Africa reflects both sides of this assessment. Its foreign exchange reserves have risen to about USD 74 billion, the inflation differential with the United States has fallen to less than 1 percentage point this decade, and the country has avoided a systemic financial event despite several global crises. Government debt, which climbed from below 30% to nearly 80% of gross domestic product, is now stabilizing, while long-term borrowing costs have fallen by about 300 basis points over the past year. However, Kganyago attributed weak growth and lower living standards primarily to institutional damage from state capture rather than macroeconomic policy, noting that reforms in energy, ports and municipal governance remain slow and output in many network sectors is still below 2019 levels.