South Africa desperately needs money and may turn to the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to offset its fiscal deficit. <\/p>\n\n\n\n
In its South Africa Outlook report for 2024, Standard Chartered’s chief Economist for Africa, Razia Khan, said that the government’s fiscal deficit is expected to reach 4.9% (4.2% previously) in the 2024 financial year (FY24) and reach 4.2% (4.0% previously) in FY25. <\/p>\n\n\n\n
Khan said that there has been a slower consolidation path than previously outlined, with lower-than-expected mining revenue, the effect of an earlier public-sector wage agreement, and higher debt service costs largely defining the widening in FY24. <\/p>\n\n\n\n
Despite being an election year, the government has pledged to contain spending by cutting expenditure by R85 billion in the medium term as it reconfigures the function of the state. <\/p>\n\n\n\n
However, Khan said there is little room for spending cuts, with concerns over government service delivery – or the lack thereof – intensifying. <\/p>\n\n\n\n
Primary fiscal surpluses are scheduled over the medium term to stabilise debt levels. National Treasury said that the failure to front-load fiscal consolidation would require an even larger primary fiscal surplus in the future. <\/p>\n\n\n\n
Near-term fiscal concerns could be mitigated by consultation between the South African Reserve Bank (SARB) and National Treasury on the use of GFECRA to offset the fiscal deficit. <\/p>\n\n\n\n
“The SARB\u2019s GFECRA is currently treated as a contingent asset of the state, and the value of its unrealised gains helps to reduce net debt levels,” Khan said.<\/p>\n\n\n\n
“Hedge funds and civil society economists have argued that South Africa does not need excessive reserves and could use at least a proportion of GFECRA gains either to reduce debt or as revenue (this would involve selling the underlying asset in order to realise notional gains).”<\/p>\n\n\n\n
“The SARB argues that R100 billion of the current R497 billion in the GFECRA tends to be impacted by market volatility and running down the country\u2019s reserve buffers at a time of heightened uncertainty may not be the best strategy.” <\/p>\n\n\n\n
Nevertheless, as SOE bailouts are rising and there needs to be further investment in infrastructure to boost growth, the debate on partial use of the GFECRA is expected to gather pace. <\/p>\n\n\n\n
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