A recipe for growth that requires dab hands
Tapping into the GFECRA is a good idea, but the money must be spent wisely on infrastructure, energy security and stimulating the moribund economy
This decision is a stopgap measure — the GFECRA cannot be relied upon as a get-out-of-jail-free card every time there’s a revenue shortfall
My former colleagues at the National Treasury and minister of finance Enoch Godongwana must be commended for so deftly handling the mammoth task of navigating this year’s national budget — especially in a critical election year. But as the dust settles on the speech, one theme stands out prominently amid the various figures and projections: the challenge of a stagnating economy.
In the face of diminishing tax revenue, rising debt, and increasing demands on the fiscus as a consequence of persistent unemployment and poverty, the speech starkly highlighted that South Africa’s “pie” is simply not growing fast enough to sustain us. Our people are growing progressively poorer as our population continues to expand more quickly than our economy.
Meanwhile, soaring costs of living have further exacerbated the financial stress facing thousands of families across the country. So, against this backdrop, National Treasury was faced with the question of how to increase support for vital social programmes and service delivery with limited resources, while avoiding tipping the fiscus over a debt cliff.
With sovereign debt levels already veering into the red, more borrowing could have further eroded the country’s creditworthiness (already in junk status), dampening business confidence and deterring investors, spelling disaster for South Africa’s financial stability.
Despite being left with few options, the Treasury’s clever budget cuts and reallocations, combined with its out-of-thebox solution, have meant that key service delivery departments have all received due allocations to maintain or even grow essential programmes and services.
The unconventional idea to tap into the South African Reserve Bank’s gold & foreign exchange contingency reserve account (GFECRA) was a stroke of genius — with some major caveats. We, as a nation, are effectively selling some of the family’s silver to see us through a very difficult time. The Treasury would have engaged extensively with the Bank in agreeing to this manoeuvre, and together the two will have developed measures to avoid compromising the solvency of the Bank in any way. There isn’t any immediate danger to drawing some funds from these reserves, but they must both ensure that there is still a sufficient buffer available to withstand any shocks caused by adverse exchange rate fluctuations.
So, despite the lack of immediate risk, this decision is a stopgap measure — the GFECRA cannot be relied upon as a getout-of-jail-free card every time there’ sa revenue shortfall. Instead, to maximise the benefit from this somewhat drastic step, the government must ensure the funds are deployed strategically to stimulate growth by spending the money in productive areas of the economy. These reserves must be leveraged effectively to bolster those sectors vital for sustainable development if we are to avoid continuously finding ourselves in a similar position.
The recommitment to improving infrastructure comes as a welcome step in this regard, as poor infrastructure is strangling trade and economic activity, while energy constraints and loadshedding weigh heavily on businesses, industries, and incomes. Successfully eliminating these obstacles, coupled with support for industries of the future such as the production of electric vehicles (EVs), could quickly shift South Africa’s economy out of idle and into high gear.
The allocation of resources towards EV manufacturing is particularly praiseworthy, reflecting a proactive stance in embracing green technologies that is in keeping with the government’s climate change financing agenda and global market trends. The twoyear implementation timeline for the investment allowance, which will commence in March 2026, is likewise pragmatic in terms of government processes and the time needed for motor industries to adapt.
Yet, although these signal positive strides, challenges remain. The efficacy of infrastructure spending is dependent on efficient utilisation and project delivery.
The government must ensure that allocated funds translate into tangible improvements in essential sectors and public service delivery, putting the necessary systems in place to enhance infrastructure spending.
The status quo is no longer viable. The Treasury has estimated real GDP growth of just 0.6% in 2023 — a level that is insufficient to address the social evils of unemployment, poverty and inequality. The government and the Treasury must strategically deploy expenditure to not only safeguard social welfare, but to catalyse economic growth, measuring the outcome of each rand spent to ensure that it is being used wisely for maximum impact.