Budget offers an opportunity not to be missed

The chatter and the debate about the now famous gold and foreign exchange contingency reserve account (GFECRA) has been rolling back and forth for months, so it will surprise nobody that the Treasury and the Reserve Bank have come to an arrangement by which management of the account can be “reformed”, as finance minister Enoch Godongwana said in his speech, allowing the Bank to “change the settlement methodology”, according to Treasury director-general Duncan Pieterse.

By creating an instrument that allows the Treasury to access the hitherto unrealised gains on the rand value of foreign reserves held on the books of the Reserve Bank, all thanks to the yearslong decline of the currency, the minister’s budget has created R150bn of unexpected headroom in a space we are so used to calling “constrained” that the quest for literary variety has had us reaching for the thesaurus.

Whatever word you choose, though, it is true. It is evidently unhealthy in a country with all our issues with regard to life expectancy, security and education to have — as the minister pointed out in a briefing on Wednesday — debt servicing costs that outweigh the allocations of health services, police and education.

The merits of tapping the GFECRA will be debated at length and the markets will have their say, but Pieterse, Godongwana and Reserve Bank governor Lesetja Kganyago are adamant that the extra funds are only for the purpose of reducing the need to go to the bond markets for debt that comes at considerably higher cost.

The risk, of course, is that should the currency appreciate significantly, this could leave the Reserve Bank (and by extension the Treasury), in an expensive bind.

The GFECRA windfall allows the Treasury to reduce its debt servicing costs by R30bn over the medium-term expenditure framework, which gives the minister considerably more space to do other things.

Chief among those is to give life to the increases in public sector wages required by recent determinations. A cynical view would be to say that this is the political payoff in this budget: the minister will satisfy a key constituency at a sensitive time for the governing party. The announcement on Tuesday that the election will take place on May 29 cannot have been far from the minister’s mind.

In many ways, though, the breathing space is to be welcomed. The state’s finances have been “under significant strain for over a decade”, according to Pieterse in the Budget Review. In plainer language, the cuts in October’s medium-term budget policy statement were the inevitable sting in the tail of a decade of sub-1% economic growth, state capture and the attendant hollowing out of the competence of the state. All this as the brutal fiscal realities of the collapse of Eskom and Transnet, in particular, began to erode the economy’s ability to generate revenue for the SA Revenue Service.

Critically, though, it is important to keep close to the notion that this is a windfall.

At a media briefing before the budget speech, Kganyago was strident in his defence of the “mechanisms” the Treasury and the Bank had put in place to protect the “buffer” in the GFECRA. A “lasting mechanism” had been devised, he said, adding that “there is no free money being created willy-nilly” and that there would never be any “ad hoc distributions”.

This is a good thing, of course, because the sound of printing presses has given people headaches of monumental proportions throughout history. If the minister and the governor are to be believed — and on the face of it there is no reason not to — then this is a one-off opportunity.

It may manifest as money, but in fact the greatest gift of the GFECRA raid is in time. That time must urgently be used to give lustful and vigorous life to the deep reforms to public enterprises, especially in logistics and energy, a warmer embrace for the private sector and a far more collaborative, far less siloed approach to how we run our economy.

In that sense, it is an exciting opportunity, but a passing one at that, and one we simply cannot afford to get wrong, because there are no other dusty cupboards containing interesting gifts at the Reserve Bank or anywhere else.

The minister has done all he can. Can his colleagues deliver on the opportunity?