Rédaction Africa Links 24 with Ray Mahlaka
Published on 2024-02-21 15:55:27
National Treasury plans to monetise and withdraw some of the accumulated funds in the Gold and Foreign Exchange Contingency Reserve (GFECR) to avoid a debt blowout and reverse planned departmental budget cuts, according to a recent announcement. The GFECR, held by the South African Reserve Bank (Sarb), is meant to offer a buffer and protection to South Africa against local and external economic shocks. The funds in the account are a reflection of losses and profits due to currency and gold price movements, with a value of R506-billion, which has grown from R28-billion since 2003.
Treasury plans to directly draw down a portion of about R150-billion over the next three years. The revenue distribution will provide R100-billion in 2024/25, R25-billion in 2025/26, and R25-billion in 2026/27 from the Sarb. They also plan to set aside an additional R100-billion to absorb exchange rate swings, cover costs associated with the transfer, and protect the solvency of the Sarb.
Duncan Pieterse, Treasury director-general, highlighted that while these are significant funds, there are associated costs with realising them. The costs should not be understated and the process to monetise the accumulated funds will be formalised through legislation, which is set to be tabled in Parliament on Wednesday.
The primary objective of drawing down the funds from the GFECR is to reduce the government’s borrowing costs and not for consumption measures such as paying public servant salaries or funding service delivery programs. The aim is to curb the smothering debt and related costs, diverting funding away from crucial service delivery programs and initiatives to grow the economy and encourage investments into the country.
Debt-service costs are expected to rise, from R356.1-billion in 2023/24 to R440.2-billion in 2026/27. Monetising the accumulated funds from the GFECR will result in debt service costs being reduced by R50-billion over the next three years. Without this option, Treasury would have had no option but to raise money or debt by issuing more government bonds, further worsening the government’s debt-servicing costs.
The move to monetise the funds will also give the government space to fund other initiatives from its existing funding framework, and limit its borrowing just to pay interest on existing debt. This includes reversing spending reductions announced in the 2023 Medium-Term Budget Policy Statement and allocating most of the additional spending to funding the pay of public servants.
It’s important to note that with the cost of paying public servants taking up 30% of the total expenditure, there could be a crowding out of spending on capital projects for future growth as well as items crucial for service delivery. Treasury is taking a new approach to containing the cost of paying public servants by increasingly asking provincial government departments to accommodate pay increases from their existing budgets, rather than allocating them new money for remuneration costs.
In conclusion, the plan to monetise and withdraw a portion of the accumulated funds in the GFECR reflects an effort by National Treasury to reduce debt levels and make room for essential service delivery programs and initiatives. The process to formalise this plan through legislation demonstrates the government’s commitment to taking the necessary steps to improve the country’s fiscal sustainability.
Read the original article on Daily Maverick
