https : / / www. research. hsbc. com / r / 20 / 7gnxqnqhnc2d. see also kaplan, d. 3 october 2019. packing for perth : skills flight is a reality, and we must plan for it. available at https : / / www. dailymaverick. co. za / article / 2019 - 10 - 03 - packing - for - perth - skills - flight - is - a - reality - and - we - mustplan - for - it /. a second indirect effect is through long - term interest rates. as you know, we at the sarb have reduced the repo rate lately, with cuts in july 2019 and january 2020. we have also tried to steer inflation expectations lower, towards the middle of our target range – and we have seen results, with all measures of inflation expectations declining. both these changes would normally have shifted long - term interest rates lower. as financial analysts would say, they should have lowered the whole yield curve. unfortunately, the yield curve has actually steepened : the gap between short rates and long rates is now the widest on record. 5 this is the result of country risk. it is the markets sending a message that there is too much borrowing. it is not about tight monetary policy. as i have explained, lower short rates and lower inflation expectations, which are the main channels between monetary policy and long - term rates, have both been working to reduce rates. indeed, if it weren ’ t for these factors, the long - term rate would likely be around 100 - 200 basis points higher than it is now, making our interest costs even more burdensome. as it is, interest costs are reducing the real money available for government to spend – reducing the real value of budgets. and these costs have also doubled in the past five years, to nearly 5 % of gdp. furthermore, a higher risk premium has spread through the rest of the economy, disincentivising investment by raising the cost of capital. simply put, our fiscal situation isn ’ t a problem of austerity. it isn ’ t about tight monetary policy. it isn ’ t because growth just mysteriously slowed down. weak growth is endogenous in our fiscal problems. we cannot keep doing what we ’ re doing and just hope that growth will recover and save us. growth is low, in large part, because of unsustainable policies. my friend, the finance minister

is the largest part of the economy. this effort has raised household consumption to its highest ever share of gdp. 8 but we are growing more slowly than ever. we have accumulated debt faster than almost all our peer countries, on the grounds that fiscal policy has to be supportive of growth. but growth stimulus works for smoothing out business cycles ; it ’ s not a long - run growth strategy. long - run growth is about savings, investment and exports. it is about raising productivity. we in south africa have deliberately run down savings, focused on consumption, and pulled in imports. our productivity growth is exceptionally low, perhaps negative. we should therefore not be surprised that growth has stagnated. ladies and gentlemen, to conclude : we in south africa have got to reform. it will involve some pain, but the longer we delay, the more painful it will be. we can tell ourselves comforting stories about how there are pain - free alternatives, but these narratives are misleading. we have spent a lot of time searching for easy options. these schemes don ’ t stand up to scrutiny. here ’ s what we can really do about mitigating the pain of necessary reform. first, we can take the edge off with the interest rate tool. provided we have lower inflation, and if country risk comes down, we can keep rates low, and maybe go lower. second, we can devise a credible plan for making things better again. in macroeconomics, as in so many things, it ’ s not about where you are, so much as where you ’ re going. the story of the last few years has been that south africa is drifting into a crisis. this has been the south african story before. we have, in the past, been able to change the narrative. south africa has many friends, and there is a lot of money out there desperate for good growth economies to invest in. we can be one of those winning countries again. thank you. 8 in the third quarter of 2019, household consumption reached 62. 1 % of gdp ( using real, seasonally adjusted and annualised data ). over the past 20 years, the average has been slightly below 60 % of gdp. investment and government consumption are also above long - run averages, while net exports are lower.