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.
Africa’s most industrialised nation is grappling with an ailing economy and high debt ahead of a general election on May 29 that could see the governing African National Congress 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 told Reuters 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 next 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 the 19th of February 2025,” said Godongwana, 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 added.
“Now that is going to require maybe well that we cut expenditure and maybe well 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.
Prospects for economic growth, currently forecast at 1.6% for 2024, could face headwinds if loadshedding were to intensify or Middle East tension to escalate.
“I factor in that there is a possibility of downside risks.”
However, the recent droughts that have wreaked havoc across much of Sub-Saharan Africa, including South Africa itself, would have no impact on food inflation, at least for now, he said.
