Finance Minister Enoch Godongwana, as reported by Reuters, has disclosed South Africa’s intention to tap into its Gold and Foreign Exchange Contingency Reserve Account (GFECRA) in an effort to confront its mounting debt.
As the country grapples with a sluggish economy and substantial debt, particularly with the approaching general election on May 29, this move signifies a significant step. The upcoming election holds particular significance as it could potentially mark the first instance in 30 years since the end of apartheid where the ruling African National Congress party faces the risk of losing its parliamentary majority.
Under the recent GFECRA framework adjustment, South Africa is now authorized to withdraw 150 billion rand ($8 billion) over a period of three years. Notably, these withdrawals are designated for purposes other than aiding state-owned entities such as Eskom or Transnet.
The country’s debt service costs have reached alarmingly high levels, prompting discussions of significant adjustments in next year’s budget. Fiscal consolidation plans are on the horizon, scheduled away from the electoral context and signaled for February 19, 2025.
The government’s focus lies on rationalizing social spending amidst economic challenges. While economic growth is forecasted at 1.6 percent for 2024, risks persist, including the possibility of intensified load shedding and tensions in the Middle East. Despite concerns, current assessments suggest that drought conditions are unlikely to impact food inflation in the immediate future.
