According to Finance Minister Enoch Godongwana, South Africa will reduce its debt load by making future withdrawals from its Gold and Foreign Exchange Contingency Reserve Account. He also mentioned that the country was considering raising taxes and cutting spending in the upcoming post-election budget.
Ahead of a general election on May 29 that might see the ruling African National Congress party lose its parliamentary majority for the first time since the end of apartheid 30 years ago, Africa’s most industrialized country is struggling with an unsteady economy and massive debt.
The government changed the rules controlling the foreign exchange reserve transactions gains and losses account known as the GFECRA account earlier this year. This adjustment permits a withdrawal of 150 billion rand ($8 billion) over the following three years.
On the fringes of a meeting between the World Bank and the International Monetary Fund, Godongwana told Reuters, “Eskom is out, or Transnet,” ruling out financial support from the account for the nation’s failing state-energy corporations.
“Debt service costs now have emerged the highest expenditure item – therefore that is a red flag.”
A little further off in the distance were additional measures as well.
According to the minister, the nation’s upcoming 2025–26 budget, which is due in February of the following year, may also have more significant changes than the previous one.
Godongwana responded, “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,” in response to a question concerning the recent budget’s lack of notable spending cuts.
The minister said, “nearly a year from now, the next budget has to send a signal and timeline by which fiscal consolidation would be concluded.”
“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 stated.
According to Godongwana, the government will also prioritize streamlining the numerous social spending programs and grants in the upcoming months.
The present prediction of 1.6% growth in the economy for 2024 could encounter challenges if load shedding were to increase or tensions in the Middle East were to rise.
“I factor in that there is a possibility of downside risks.”
But for the time being at least, he said, food inflation would not be impacted by the recent droughts that have caused devastation across most of Sub-Saharan Africa, including South Africa.
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