Introduction

The South African Reserve Bank (SARB), has not done enough to promote economic
expansion and the creation of jobs (Vermeulen, 2020: 1-2). The SARB's role in the
discussion of South African economic policy has come under scrutiny as critics are
unsatisfied with the SARB's stabilisation policy against the backdrop of a weak
economy, high unemployment, and widespread poverty (Vermeulen, 2020: 1-2).  A
macroeconomic tool known as stabilisation policy aims to lessen the erratic changes in
the level of overall economic production and other indicators of the business cycle (). It
is evident that stabilisation measures have failed to reach South Africa's
macroeconomic objectives (Vermeulen, 2020: 1-2).
This essay will evaluate the accomplishments and shortcomings of South Africa's
stabilisation strategy.  The essay will concentrate on the many points of view offered by
authors about the accomplishments and shortcomings of the macroeconomic strategy.
The essay will also examine the benefits and drawbacks of the nationalisation of the
SARB in order to address the nation's socioeconomic problems.

South Africa’s Macroeconomic Goals

According to Collier & Dollar, an economy's development often depends on the type and
effectiveness of its economic policy (Collier & Dollar, 2004). Five primary
macroeconomic goals of high and sustained economic growth, price stability, full
employment, balance of payments equilibrium, and equitable income distribution were
set by the new democratic government after the fall of the apartheid regime (The
Presidency, 2015). However, the largest obstacle faced by the new democratic
government macroeconomic aims was trying to accomplish all of them at once.
Choosing one objective frequently means sacrificing the other. For instance,
suppressing aggregate demand may be necessary to manage inflation, which would
result in high unemployment and weak economic expansion (Vermeulen, 2020; The
Presidency, 2015).

The policies set out to achieve South Africa’s Macroeconomic Goals

Since the end of the apartheid system, the new democratic administration has, in the
words of Segatti & Pons-Vignon, "been devoted to macro-economic orthodoxy" (Segatti
& Pons-Vignon, 2013: 537-539). The South African state has changed from a
"developmental state" to a "cost-controlling state" due to its adherence to
macroeconomic orthodoxy (Segatti & Pons-Vignon, 2013: 538-543). The democratic
administration had to focus on stabilising the economy because it had been left in a
precarious state when it took office, which is why the SARB's stabilisation strategy was
highlighted (Segatti & Pons-Vignon, 2013: 538-543).
The two primary policy choices that South Africa uses to attain its macroeconomic goals
are monetary policy and fiscal policy. Adjusting fiscal policy entails changing taxation or
spending levels. Conversely, monetary policy entails altering the money supply and
interest rates (Burda and Wyplosz, 2013). This essay will mostly focus on monetary
policy because the discussion over the SARB's function is primarily focused on the
attitude of monetary policy, which is influenced by the SARB's power over interest rates.
Economic stability is the goal of the monetary policy of the South African government.
As a result, the government's only directive for the SARB is to concentrate on ensuring
price stability (Vermeulen, 2020: 4-6).
The SARB has adopted inflation targeting as its main goal, attempting to keep inflation
between 3-6%, in order to ensure price stability (SARBa, n.d.a). The repo rate, which
the SARB loans to commercial banks at, is its primary tool for implementing policy. It
serves as an anchor for longer-term and domestic interest rates as well as the prime
lending rate. The key factor affecting the cost of borrowing, and hence the SARB's
primary weapon against inflation, is the repo rate. The cost of borrowing rises when the
SARB raises the repo rate. The consequence of the rising cost of borrowing is to slow
down investment and consumer expenditure, and eventually aggregate demand, which
results in a decline in economic growth (Vermeulen, 2020: 4-6).

The theoretical reasons underlying South Africa’s current macroeconomic policy.

Neoclassical economics, which prioritises price stability and a general reduction in
government spending, informs South Africa's current macroeconomic strategy (Segatti
& Pons-Vignon, 2013: 541). Price stability is important from two angles. First, inflation
weakens living standards by lowering buying power. Therefore, maintaining buying
power is crucial, particularly for the underprivileged and jobless. According to StatsSA,
"volatile inflation hits the poorest" since they cannot defend themselves from it, in
contrast to wealthy individuals who can invest their money to outpace inflation or obtain
pay increases that are higher than inflation (StatsSA, 2019).
Secondly, the South African Treasury claims that "stability in the value of money...
enhances growth prospects" (Vermeulen, 2020: 7). To stabilise inflation expectations, it
is advised to set an inflation objective (Wessels 2004:144). Therefore, if economic
actors foresee less inflation, it may improve the chances for investment. Lower inflation
expectations, according to Kabundi and Schaling, improves investment, which will lead
to job creation and a decrease in poverty (Kabundi & Schaling, 2013). Stable prices,
higher production, and improved employment are the three pillars of inflation targeting.
According to Maduku and Kaseeram, the idea contends that by adjusting interest rates,
the economy may manage to achieve the desired outcome (Maduku and Kaseeram,
2018).
Furthermore, it is crucial to note that inflation targeting calls for a central bank that can
function independently of politics. This is due to the fact that when the central bank is
free from political constraints, monetary policy has more sway (Vermeulen, 2020: 7-9).
The ability to successfully target the ideal inflation rates, which would provide a
financially secure, investor- and business-friendly climate, should be possessed by a
competent and independent central bank (SARB, 2004). In this sense, a central bank
that is efficient and successful must be independent of political pressures and entirely
responsible for price stabilisation (Vermeulen, 2020: 7-9).

The Debate to Nationalize the SARB

Vermeulen claims that the SARB's strict position on monetary policy is frequently seen
as having a negative impact on economic growth (Vermeulen, 2020: 5). This is in
accordance with Epstein's argument that the criticism stems from the perception that the
SARB's fixation on preserving price stability restricts economic growth and job creation
and that it simply does not complement the government's overall economic strategy and
aims (Epstein, 2008). In a report released by the Public Protector (PP), it was further
claimed that the SARB's actions, which "involve large amounts of public money does
not help the socio-economic situations of regular individuals" (PP, 2017:5.3.23).
Therefore, according to the report the SARB’s mandate should be amended to include
the protection of ‘socio-economic well-being of the citizens’, and that the SARB should
ensure the achievement of ‘meaningful socio-economic transformation’ (PP 2017:7.2.1).
The SARB, in contrast to other central banks across the world, is privately owned and
has a single mandate of price stabilisation (SARB, 2020; KZN Treasury, 2018:4). The
SARB's exclusive mission has frequently resulted in increased unemployment (SARB,
2022: 9). Economic theory suggests that unemployment and inflation are inversely
related. As a result, unemployment drops as inflation rises (Alisa, 2015). Because to
rising unemployment, as of 2015, "55.5% of the population" in South Africa was said to
be living below the "national upper poverty threshold of R 992", which is explained by
the inverse link between inflation and unemployment (Sulla, 2020: 1-2). The decision to
nationalise the SARB is surrounded by the notion that expanding the SARB's mandate
beyond controlling inflation to include "meaningful socioeconomic transformation" goals
like job creation and economic growth might assist in reducing South Africa's rising
socioeconomic instability (Reuters, 2022; Merten, 2020).
The process of transferring ownership of privately held businesses or assets to the
government is known as nationalisation (Rossouw, & Breytenbach, 2011). As a result,
nationalising the SARB should result in the South African government owning all of the
reserve bank's shares (Rossouw, & Breytenbach, 2011). The central bank's
constitutional mandate is outlined in the constitution, and the government appoints
SARB's leadership, as mentioned by Rossouw (Rossouw, & Breytenbach, 2011). As a
result, changing the ownership of SARB from private shareholders to the South African
government would have no impact on that mandate. Furthermore, in response to
Rossouw's assertions, Cyril Ramaphosa, the president of South Africa, stated that the
resolution would not have an effect on the function, authority, or independence of the
reserve bank since government ownership does not always entail government control
(News24, 2019).
Vermeulen contends that nationalisation may, however, be a step towards "expanding
the mandate to explicitly include economic growth and employment creation"
(Vermeulen, 2020: 4-6). South Africa's persistent unemployment issues may be reduced
by extending the banks' mandate beyond price stability to include socioeconomic issues
like inequality and unemployment. The central bank's mandate, according to the ANC,
"focused too much on inflation at the expense of job creation" (News24, 2019). Whilst
the reserve bank focused on meeting its mandate, the rate of unemployment in South
Africa gradually increased from a record low of 21.50% in the fourth quarter of 2008, to
reaching an all-time high of 35.30% in the fourth quarter of 2021 (StatsSA, 2022). The
focus on price stability has clearly come at the expenses economic growth and
employment creation. This is in line with du Plessis & Smit argument that South Africa’s
growth falls short of the required levels to “advance employment and development for
the entire South African population” (du Plessis & Smit, 2006: 28).

The main challenges to these policies

The first critique to nationalization of the SARB is the cost. According to Rossouw,
determining the buyout value of the bank’s shares will be problematic, this is because
the SARB’s Act makes the provision for the liquidation of the central bank, but not for its
nationalisation. In the event of liquidation, the legislation prescribes that shareholders
should be reimbursed for their shares in terms of a formula based on the trading value
of these shares (News24, 2019). According to Rashad Cassim, “It is a cost to pay from
public debt with little gain” (News24, 2019). Cassim is of the opinion that the cost to
taxpayers to nationalise the SARB is far greater than any potential benefit of
nationalisation, as nationalisation would not impact the role, mandate, or independence
of the reserve bank because government ownership does not necessarily imply
government control (News24, 2019).
The second critique to nationalisation of the SARB is the confusion between
nationalisation and the expansion of the central banks mandate (News24, 2019).
According to Fowkes, "There are two issues here, Nationalisation and Mandate” (News,
24: 2019). Fowkes argues that the Nationalisation of the SARB does not entail the
expanding of its mandate. There is little reason to believe that the nationalisation of the
Reserve Bank would impact its independence (News, 24: 2019). According to Fowkes,
“some central banks are wholly owned by the state but remain independent”, thus it is
perfectly normal for central banks to meet their mandate without government
interference (News, 24: 2019). Furthermore, it is important to note that expanding the
banks mandate to include socioeconomic objective could ‘compromise the bank and
invite political interference’ Wessels asserts (Wessels 2004:135).
The mandate of the SARB was not always so clearly defined, in the 1980s, the goals of
monetary policy were to "promote economic growth, price level stability, balance of
payments equilibrium, and enhance employment" (Wessels, 2004: 137). Various
monetary policy objectives, however, "were prioritised at different periods" in actuality
(Wessels 2004:137). Wessels contends that having several aims might "compromise
the bank and invite political interference," and that it is thus "imperative for a central
bank to have a clear, single or core objective" (Wessels, 2004:135).
The third and major critique of the nationalization of the SARB is the potentially removal
of the independence of the SARB (Vermeulen, 2020). According to Rossouw, the
central bank should be protected from political interference because political
interference would have an impact on the constitutional mandate of the central bank.
However, those pushing for nationalisation are against the independence of the SARB.
Critics of the current system want the SARB’s independence curtailed as they believe
the SARB is misguided on focusing on keeping inflation under control and that this
compromises economic growth (Vermeulen, 2020).
In emerging economies, the government will usually push harder for more social
spending that is financed  by government expenditures but against a smaller tax base
(Kahn 2008:131). Under such circumstances, the central bank may be compelled to
create money in order to support fiscal deficits or pay off the government's obligations,
which might eventually allow a government to spend money carelessly. The inflationary
effects of such behaviour could sometimes be disastrous (Vermeulen, 2020: 8-10). As a
matter of fact, Kganyago claims that the central bank's "Independence" ensured that the
“tremendous powers" like "printing money, or licencing and supervising banks, could not
be taken over by politically connected individuals bent on looting the state instead of
serving the citizens that the central bank" (Kganyago, 2019 :2).

The success or failure when it comes to South Africa’s macroeconomic goals

Since the beginning of democracy in 1994, the government's primary economic goals
have been the creation of jobs, the eradication of poverty, the reduction of inequality,
and the general sustainable expansion of the nation's wealth. Macroeconomic stability
served as the primary weapon of economic policy in achieving these goals (The
Presidency, 2015).
The government's assessment of the country's first 15 years of democracy came to the
conclusion that macroeconomic stability had been successfully preserved in South
Africa. However, when it comes to South Africa's macroeconomic aims, the other
economic objectives of the government such as the creation of jobs, the eradication of
poverty, and the reduction of inequality have proven to be South Africa's primary
shortcoming (The Presidency, 2015). This was in keeping with Segatti & Pons Vignon's
view that the South African state became a "cost-controlling state" rather than a
"developmental state" due to its adherence to macroeconomic orthodoxy (Segatti &
Pons-Vignon, 2013: 538-543).
The emphasis on "cost-controlling" rather than a "developmental state" may contribute
to the explanation of South Africa's rising unemployment rates, which have caused
about 55.5% of the population to live below the country's upper poverty line of R 992 as
of 2015 (StatsSA, 2022). The argument for expanding the SARB's mandate to include
socioeconomic goals like job creation and economic growth in addition to managing
inflation centres upon the decision to nationalise the SARB (Vermeulen, 2020).
Furthermore, Friedman claims that while inflation targeting has been adopted by
developing nations, central banks still work to achieve it Friedman (Friedman, 1968: 6-
9). As a result, central banks should concentrate on long-term controllable factors since
the relationship between price levels and the central bank is too complex and
unpredictable, according to Friedman (Friedman, 1968: 6-9). For instance, the 3% to
6% inflation target range applies to South Africa. But as of July 2022, the inflation rate
for this year is 7.8%, which is higher above the central bank's goal range (Friedman,
1968: 6; Stats SA, 2022). Friedman contends that because the central bank has little
control over interest rates, it should concentrate on maintaining constant growth in one
or more monetary aggregates (Friedman, 1968:5).

The policies that would best bring about more meaningful progress in South
Africa’s macroeconomic outcomes?
The main problems of poverty, unemployment, and inequality in South Africa cannot be
resolved by the nationalisation of the central bank. Rather, because the SARB's mission
is ultimately regulated by the South African Constitution, which can only be changed by
Parliament through a Constitutional Amendment Bill, the extension of the banks'
mandate may be used without the expensive process of nationalisation (Vermeulen,
2020). Mnimele asserts that the bank's mission should also be centred on lowering the
high unemployment rate, which will be accomplished over regulating inflation rates
(Mnimele, 2019).
Similar to the Federal Reserve Bank of America, the South African government can
impose a dual mandate on the SARB that focuses on the two core objectives of price
stability and maximum sustainable employment (Vermeulen, 2020; Thornton, 2012).
The implementation of a dual mandate that prioritises sustainable employment growth
might aid South Africa in addressing its long-standing inequality issue (Vermeulen,
2020). As Alesina and Perotti note, "income disparity enhances socio-political instability
and the latter diminishes the inclination to invest," which in turn slows economic growth,
the reduction in inequality may help South Africa combat its developing socioeconomic
instability. Consequently, a decrease in inequality may lead to less social discontent,
which may foster an atmosphere that is more favourable to investment, leading to an
increase in economic development (Alesina & Perotti, 1996: 1204-1205; Burda and
Wyplosz, 2013).
In addition, the SARB can make use of the Modern Monetary theory (MMT), which
contends that the government no longer has to raise taxes in advance because
spending can now be covered by the central bank "printing" money and issuing more
bonds to the general public (G - T = θ + β) (Palley, 2015). A key element of neo-
Keynesian (Orthodox) theory of fiscal policy was the budget constraint, which amply
proves that sovereign money-issuing governments can pay deficits without raising
taxes. MMT believes that by employing an expansionary fiscal strategy, the government
may promote economic expansion and attain full employment (Palley, 2015).
Due to the government's freedom from financial constraints, theories like MMT
theoretically allow for the adoption of programmes like the Universal Basic Income
Grant (BIG) by the South African government. BIG adoption may significantly lessen
poverty in South Africa (Vegter, 2021; Palley, 2015). This is so that a BIG may help stop
the vicious socioeconomic cycle by lowering inequality, which in turn reduces social
discontent (Vegter, 2021; Alesina & Perotti, 1996: 1204).

Conclusion
In conclusion, the essay has pointed out that the SARB has not done enough to
promote economic growth and job development. The macroeconomic policies of the
SARB do not address South Africa's macroeconomic issues, which include high
unemployment, rising poverty, and rising inequality. Given that the SARB's stabilisation
programme will never significantly improve the country's existing socioeconomic
realities, the SARB's position in the discussion of South African economic policy is
legitimately debatable. As a result, the SARB must be given a mandate by the South
African government that will result in significant changes to the country's economy.
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