an address by lesetja kganyago, governor of the south african reserve bank, at the african economic research consortium cape town 02 june 2019 growing with debt in african economies – options, challenges and pitfalls good morning ladies and gentlemen. i would like to thank the african economic research consortium for inviting me to introduce this important topic. i hope you will indulge me while i reflect the opportunities, challenges and pitfalls presented by debt to developing economies in sub - saharan africa. economic growth in sub - saharan africa ( ssa ) has been improving from the low base in the early 1990s and is set to continue. real gdp is projected to pick up to 3. 5 % in 2019 and 3. 7 % in 2020. however, this remains well below the averages of the 2000s. there are also growing questions about macroeconomic stability given the weakening of fiscal positions in a number of low income developing countries ( lidcs ) in recent years. according to the imf, debt burdens and vulnerabilities of lidcs have risen significantly since 2013, reflecting a mix of factors, including exogenous shocks and loose fiscal policies. this calls for a reflection on the role played by public debt in economic development. it is broadly accepted that governments resort to borrowing because taxation alone cannot provide sufficient funds for economic development. the challenge is to ensure that debt financing is done in a sustainable way. at the turn of the 21st century, billions of dollars ’ worth of debt was wiped clean across sub - saharan africa. south africa was instrumental in pushing for debt relief and we succeeded in late 1990s when the hipic programme was agreed through the development committee of the world bank and international monetary fund. at the time, the solution appeared simple – wipe off the debt and allow countries space to get their affairs in order and growth and stability will follow. for a time, we saw significant improvements in the continent, with many countries strengthening their macroeconomic frameworks and institutions. a number of countries also gained market access. in 2018, international bond issuances in the region reached a new high, totalling more than usd17 billion, with the average issuance rising to nearly usd3 billion 1. as the imf has observed, ssa has been the world bank africa pulse, april 2019 page 1 of 4 region with the fastest debt growth in recent years across a group of low income and developing countries. in 2018, about 16 ssa countries were at high risk of debt distress – more than double

. over the first four months of this year, non - residents increased their holdings of south african equities and bonds by no less than r34 billion. this enabled south africa to continue with the programme of gradually relaxing exchange controls, and also helped the reserve bank to increase its net foreign reserves by r4. 9 billion during the first quarter of this year. south africa can continue to hold the confidence of foreign investors, provided we are also prepared to continue to apply the sound monetary and fiscal policies of the past year. if not, foreign market sentiment towards the country can change very quickly, and we can easily be forced into a new financial market crisis of our own. with his latest budget, the minister of finance reconfirmed the government ’ s determination to maintain the necessary disciplines in fiscal policy. the reserve bank is known for its conservative approach towards monetary policy, and is equally determined to maintain strict disciplines in the management of the money and banking systems of the country. in this way, south africa will continue to benefit from being part of the global financial system, and to make use of the savings of other countries to help finance growth and development. in summary, it depends on us and on the economic policies we apply, whether an east asian crisis will also develop in south africa. foreign investors nodded their approval of the policies of the past year. we should therefore not deviate unnecessarily from the course of the existing policies.