GFECRA reserves are not for Eskom and Transnet, says Enoch Godongwana

SA will use future drawdowns of its Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to curb its debt burden, finance minister Enoch Godongwana said, adding he was pondering tax hikes and expenditure cuts in the next post-elections budget.

The country is grappling with an ailing economy and high debt before the May 29 general elections that could see the ANC lose its parliamentary majority for the first time since the end of apartheid 30 years ago.

Earlier in 2024, the government announced a change to the framework governing the GFECRA account that captures gains and losses to foreign currency reserve transactions, allowing for a drawdown of R150bn over the next three years.

“Eskom is out, or Transnet,” Godongwana said on the sidelines of the International Monetary Fund (IMF) and World Bank meeting, ruling out financial support from the account for the country's ailing state-energy firms.

“Debt service costs 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 2025/2026 budget, scheduled for February 2025, 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 we will table on February 19 2025,” Godongwana said 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 said. “That is going to require maybe that we cut expenditure and maybe that we tweak some taxes. It could be a combination of both.”

Another area in which the government would focus in the months to come was consolidating the plethora of social spending measures and grants, Godongwana said.

Prospects for economic growth, forecast at 1.6% for 2024, could face headwinds if load-shedding were to intensify or Middle East tension to escalate.

“I factor in there is a possibility of downside risks.”

However, Godongwana said the recent droughts that have wreaked havoc across much of Sub-Saharan Africa, including SA, would have no impact on food inflation, at least for now.

Reuters