BUDGET 2024 | Government to tap into special account to reduce debt

National Treasury plans to draw down from a special R500bn account for the first time to reduce debt and associated servicing costs over the next three years, according to the 2024 budget.

Tabling his 2024 budget speech on Wednesday, finance minister Enoch Godongwana said government would draw down on the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), managed by the South Africa Reserve Bank, which has accumulated reserves of more than R500bn as result of rand depreciation over the past 12 months.

The GFECRA account captures profits and losses on foreign currency reserve transactions.

An amount of R250bn will be drawn from the account, but Treasury will only access R150bn, with the remaining R100bn going back to the Reserve Bank to ensure it has sufficient buffers to absorb swings in the exchange rate.

“We will draw down R150bn of the GFECRA balance once we have ensured sufficient buffers are available to absorb exchange rate swings and the solvency of the Reserve Bank is not compromised.”

The budget review said the draw down will be formalised through legislation which would be tabled with the budget on Wednesday.

Government will use the funds to reduce borrowing and consequently the growth in debt service costs, the budget review said.

Godongwana tabled the 2024 budget speech in parliament in Cape Town.

Addressing reporters during a briefing before the speech, Reserve Bank governor Lesetja Kganyago said the full amount to be drawn from the GFECRA would be R250bn, of which R100bn would cover the administrative cost of covering the drawdown.

“We are transferring R250bn to the Treasury. But once you have transferred R250bn to the Treasury, the Treasury will spend R150bn,” Kganyago said.

The budget review said the GFECRA funds came in hand over the past year as government made adjustments due to lower-than-expected revenue, new spending pressures and R206bn removed from department baselines as well as provisional allocations.

“Subsequent improvements in revenue and reduced debt service costs associated with the expected GFECRA distribution have made it possible to reverse some of the reductions,” the review said.

It said the last settlement of balances in this account was reached in 2003 to the value of R28bn in the Reserve Bank's favour, and the value of the account has grown to more than R500bn due to the rand depreciation since.

“A proposed settlement agreement to be formalised between National Treasury and the Reserve Bank will settle a portion of the valuation gains after ensuring the necessary buffer and contingency reserve are fully funded,” the review said.

It said government decided to further mitigate fiscal risks by reducing borrowing over the medium term using a portion of valuation gains in the reserve account.

“As a result, debt service costs will decline by R30.2bn over the 2024 MTEF [Medium Term Expenditure Framework] period compared with the 2023 MTBPS [Medium Term Budget Policy Statement] estimate,” the review said.

As a result of the utilisation of GFECRA, government will receive distributions of R100bn in 2024/25, R25bn in 2025/26 and R25bn in 2026/27 from the Reserve Bank to reduce domestic market financing requirements and the growth of debt stock and debt service costs.

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