South Africa will use future drawdowns of its Gold and Foreign Exchange Contingency Reserve Account to curb its debt burden, finance minister Enoch Godongwana said, adding he was pondering tax hikes and expenditure cuts in the next post-election budget.
The country is grappling with an ailing economy and high debt ahead of a general election on 29 May that could see the ANC lose its parliamentary majority for the first time since the end of apartheid 30 years ago.
Earlier this year, the government announced a change to the framework governing the so-called GFECRA account that captures gains and losses to foreign currency reserve transactions, allowing for a drawdown of R150-billion over the next three years.
“Eskom is out, or Transnet,” Godongwana said on the sidelines of the International Monetary Fund and World Bank meeting, ruling out financial support from the account for the country’s ailing state-energy firms. “Debt service costs now have emerged 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 next year — 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 that we will table on 19 February 2025,” said Godongwana, when asked about the absence of significant expenditure reductions in the recent budget.
Economic growth
The next budget, nearly a year down the line, must send a signal and timeline by which fiscal consolidation would be concluded, the minister added. “Now that is going to require maybe … that we cut expenditure and maybe … that we tweak some taxes — it could be a combination of both,” he said.
Another push the government would focus on in the months to come was consolidating the plethora of social spending measures and grants, said Godongwana.
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Prospects for economic growth, currently forecast at 1.6% for 2024, could face headwinds if load shedding were to intensify or Middle East tension to escalate. “I factor in that there is a possibility of downside risks.” — Karin Strohecker, (c) 2024 Reuters
