In a bid to look for funds in combating the economic crisis posed by the Novel Coronavirus, South Africa’s deputy finance minister has advised the South African Reserve Bank (SARB) to print more money.
In an interview with the Sunday times, David Masondo advised that SARB should buy government bonds directly to fund the country’s deficit during the coronavirus crisis.
Cited by Reuters, Masondo said: “Such bonds must be once-off special bonds with earned proceeds, and should be treated as a temporary measure with a clear exit plan,” he was quoted by the paper as saying.
“Such money from the SARB must be used for immediate COVID-19 health-related interventions and … economic recovery measures,” he added.
His advise was to fund the $26.3 billion rescue package proposed by President Cyril Ramaphosa which had no clear cut source of funding.
There are is no guarantee that Masondo’s advice will be considered by the Finance Minister Tito Mboweni, a conservative who has always stressed the independence of SARB.
There serious red flags with his proposal because, although the South Africa is Africa’s most industrialised country, it entered into a recession before the outbreak of Coronavirus. The rescue package is also about 10% of its gross domestic product,GDP.
Should the country tinker with the plan to buy its own bonds, to fund its economic rescue plan, it stands a chance of an exacerbate a run-away inflation which could end up degrading its currency which has already taken a dip after it entered a recession Las quarter.