Organised business has urged National Treasury to exercise caution should it tap into the SA Reserve Bank’s R500bn gold and foreign exchange contingency reserve account (GFECRA).
Business Leadership SA CEO Busisiwe Mavuso said on Monday withdrawals from the account should have strict and credible conditions attached.
Finance minister Enoch Godongwana is expected to make an announcement on how and whether Treasury plans to draw on the account in his budget speech on Wednesday.
Mavuso commented in her weekly newsletter that the reserves, which could be used to relieve the government’s fiscal pressures, should not be used for more spending or bailouts, but should rather be used to “protect the country from international crises and maintain its credibility in the international financial system”.
“It is not a free money pot for government bailouts,” Mavuso said.
The GFECRA houses the unrealised profits or losses on SA’s gold and foreign exchange reserves and these are for the account of the Treasury, not the Reserve Bank, which manages the reserves.
A rising gold price and depreciating rand have seen GFECRA profits reach almost R500bn and there have been calls from some fund managers and economists to realise a portion of these to reduce the government’s high cost of borrowing.
Realising the profits would come at a cost that the Treasury would probably have to bear. Still, the move would help lower borrowing costs and the borrowing requirements in the short term.
Business expects to hear how government will restore public finances, increase spending on infrastructure and fix state-owned entities, in particular Eskom and Transnet.
“We cannot afford to see more public money going into them without credible reforms. We have a plan on how the logistics crisis should be dealt with in the form of the Transnet road map that has been approved by cabinet and made public earlier this month,” she said.
“It is a good plan, but Transnet needs to be fully committed to its implementation, which also means confirming the urgent appointment of its executive team. That should be a condition of any Transnet funding.
“The financial performance of government has been a material risk that has at times damaged SA’s investment case. The rapid deterioration of the fiscal position during the Zuma years triggered fears that we were on a terminal path to bankruptcy,” Mavuso said.
Godongwana pencilled in R15bn of tax hikes in November’s medium-term budget policy statement.
However, considering SA would be holding an election this year, an increase in the VAT rate from the current 15% was unlikely because it would affect the poor the most, Mavuso said.
“Increasing taxes may seem to be one way to restore government finances, but the evidence is that behavioural shifts in response to higher tax rates undermine collections.
“The only tax that can be reliably increased to raise additional revenue is VAT, a regressive tax that affects the poor the most and I can’t see that happening in an election year.”
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