Budget 2024: Govt to dig into SA's gold and foreign exchange to reduce R5 trillion debt

CAPE TOWN - The pressure to reduce its R5 trillion debt has pushed the government to dig into the country’s gold and foreign exchange reserves to pay off some of it. 

In a major move announced by Finance Minister Enoch Godongwana in tabling the 2024 budget Wednesday, R150 billion will be withdrawn from the contingency reserve account over the next three years to settle debt costs.

The account – which captures losses and profits on foreign currency transactions - currently has a value of over half a trillion rand from less than R2 billion in 2006.

The Gold and Foreign Exchange Contingency Reserve Account – GFECRA - is an account held by the South African Reserve Bank aimed at protecting it from currency volatility. 

When the rand exchange rate against the US dollar and other currencies strengthens – the account balance declines.

But when the rand depreciates – the balance improves.

Godongwana says withdrawing from this account will allow the National Treasury to settle debt-service costs of R30.2 billion in the medium term.

“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.” 

National Treasury says the move will also pave the way for reform in how valuation gains on foreign exchange reserves are accounted for – and bring it closer to peer norms. 

Besides reducing the government’s borrowing – the National Treasury says it will also improve the central bank’s equity position. 

A proposed settlement agreement that will allow the National Treasury to access the funds will have to be formalised through legislation which the minister has also tabled.