Gold and forex reserves tapped to pay debt as fiscal noose tightens

SOUTH Africa will use future drawdowns of its Gold and Foreign Exchange Contingency Reserve Account to curb its debt burden, Finance Minister Enoch Godongwana said, adding that he was pondering tax hikes and expenditure cuts in the next post-election budget.

Africa’s most industrialised nation is grappling with an ailing economy and high debt ahead of a general election on May 29 that could see the governing ANC party lose its parliamentary majority for the first time since the end of apartheid 30 years ago.

Earlier this year, the government announced a change to the framework governing the so-called GFECRA account that captures gains and losses to foreign currency reserve transactions, allowing for a drawdown of R150 billion rand over the next three years.

“Eskom is out, or Transnet,” Godongwana told Reuters on the sidelines of the International Monetary Fund and World Bank meeting, ruling out financial support from the account for the country’s ailing State-energy firms.

“Debt service costs now have emerged as the highest expenditure item – therefore that is a red flag."

Other measures were also on the horizon a bit further out. The country’s next 2025/2026 Budget – scheduled for February next year – could also see more pronounced adjustments than the last one, the Minister said.

“If you want to do a fiscal consolidation you must do it far away from the election, and the timing for us is the Budget that we will table on the February 19, 2025,” said Godongwana, when asked about the absence of significant expenditure reductions in the recent Budget.

The next Budget, nearly a year down the line, must send a signal and timeline by which fiscal consolidation would be concluded, the Minister added.

“Now that is going to require maybe well that we cut expenditure and maybe well that we tweak some taxes – it could be a combination of both,” he said.