South Africa’s Finance Minister, Enoch Godongwana, has announced an unusual decision to use a third of the country’s gold and foreign exchange reserves to address runaway debt and create fiscal space in an election year. The move was revealed in Parliament in Cape Town, just a day after President Cyril Ramaphosa declared that general elections would take place on May 29. The ruling African National Congress (ANC) faces a challenging campaign, making the need for economic measures crucial.
South Africa plans to withdraw 150 billion rand ($8 billion) over the next three years, with measures in place to safeguard against exchange rate fluctuations and ensure the solvency of the Reserve Bank is not compromised. Financial markets responded positively, with the currency appreciating and bond yields decreasing.
The decision was also welcomed by the country’s largest worker union federation. Matthew Parks, a spokesman for the Congress of South African Trade Union, emphasized the strategic use of reserves to stabilize and rebuild critical entities like Eskom and Transnet. He highlighted the importance of utilizing this one-time relief to stimulate economic growth and reduce unemployment.
South Africa’s debt is expected to peak at 75.3% of GDP next year, with the government projecting a stabilization in the following years. Debt service costs have been a significant budgetary concern, hindering investments in economic stimulus, especially with the country’s average economic growth at 0.8% over the past decade.
This unconventional approach underscores the challenges faced by the South African government in managing its finances during a crucial election period while aiming for economic recovery and stability. The success of this strategy will depend on effective implementation and the ability to translate the fiscal relief into sustainable economic growth.
