The announcement by Finance Minister Enoch Godongwana that the government plans to tap into foreign exchange account to reduce debt service costs confirms the ANC’s inability to effectively manage finances, Xiluva President Bongani Baloyi said on Wednesday.
This decision, announced by the finance minister during the tabling of the 2024 Budget Speech held in Cape Town, further highlights significant concerns about the country’s fiscal management, Baloyi pointed out.
“We will draw down R150 billion of the GFECRA balance once we have ensured that sufficient buffers are available to absorb exchange rate swings and the solvency of the Reserve Bank is not compromised,” said the Minister.
Godongwana explained that a combination of high debt servicing costs and a higher budget deficit has led to the introduction of a new reform of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA).
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The reform is aimed at mitigating fiscal risks by reducing government borrowing in the medium-term and will allow government to draw down from its GFECRA held at the Reserve Bank, he said.
GFECRA is a Reserve Bank held account which captures gains and losses on South Africa’s foreign currency reserve transactions and the account has grown to more than R500 billion.
“Utilizing such reserves should be a measure of last resort, as depleting them could potentially impact the country’s ability to weather future financial crises or fluctuations in global markets, said the president of Xiluva.
According to Baloyi, the high percentage of revenue being consumed by debt-service costs is a worrying issue “given that it exceeds the budgets of important sectors such as social protection, health, peace, and security.”
“This emphasizes the need for effective debt management strategies to prevent the disproportionate allocation of resources towards debt repayment at the expense of essential services and investments in the country’s development.
“A re-evaluation of budget priorities and potentially renegotiating debt terms could help mitigate this issue and ensure a more sustainable economic future,” he suggested.
Meanwhile, Godongwana also indicated that national government debt is expected to peak at some 75.3% of the Gross Domestic Product (GDP) in 2025/26 with 2023/24’s budget deficit estimated to worsen to 4.9 % of the GDP.
