Treasury to tap into R500bn reserve funds to cut debt

This was announced by Finance Minister Enoch Godongwana during his budget speech at the National Assembly on Wednesday afternoon.

He told MPs that the government had decided to introduce a new reform of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA).

GFECRA is an account held at the Reserve Bank that captures gains and losses on the country's foreign currency reserve transactions.

Godongwana said the account balance has grown to over R500 billion over the years due to the  rand depreciating over time.

"We will draw down R150 billion of the GFECRA balance once we have ensured that sufficient buffers are available to absorb exchange rate swings and the solvency of the Reserve Bank is not compromised," said Godongwana.

The drawdown is expected to result in a decline of some R30.2 billion in government debt servicing costs over the 2024 Medium Term Expenditure Framework (MTEF).

Godongwana said the national government debt is expected to peak at some 75.3% of the Gross Domestic Product (GDP) in 2025/26 with 2023/24’s budget deficit estimated to worsen to 4.9% of GDP.

"A net reduction of R80.6 billion in non-interest expenditure is being implemented over the medium-term. At the same time, revenue has been revised up by R45.6 billion over the medium-term," he said.

Godongwana added that the debt-service costs will absorb more than 20% of revenue. 

"To put this into perspective, spending on debt-service costs is greater than the respective budgets of social protection, health, or peace and security."

The minister also announced a global minimum tax aiming at multinational corporations.

"Multinational corporations with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15% regardless of where their profits are generated.

"The proposed reform is expected to yield an additional R8 billion in corporate tax revenue in 2026/27."

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