Could Gigaba have his eye on SA’s foreign exchange reserves?

One of the key issues in today’s Medium-Term Budget Policy Statement  (MTBPS) is how finance minister Malusi Gigaba will find a way to fill a R40 billion to R60 billion hole in the budget. That is the estimated revenue shortfall that the government is facing this year.

It is almost certain that he will announce increased taxes, but he may be politically constrained in how much he can do there. That raises the question of where he could raise more money.

Chief economist at the Efficient Group, Dawie Roodt, says that one possibility may be for him to try to use money currently held in dollars at the South African Reserve Bank (Sarb).

“There’s in excess of R100 billion in balances at the Reserve Bank,” Roodt explains. “They might want to use that money.”

The reserves were built up during the time when Trevor Manuel was finance minister and South Africa was running a budget surplus. It was a convenient way to move money out of government bank accounts to prevent it from being spent, but also for the Reserve Bank itself to drain some liquidity from the market.

“That money is still lying at the Reserve Bank and I have a suspicion Gigaba is going to try to get his hands on it,” Roodt says. “The question is whether he can.”

This is certainly not straightforward.

“If he takes that money, which is in dollars he must sell the dollars to the Reserve Bank to get the rands to spend,” says Roodt. “That means that the Sarb will be printing money for a minister to spend.”

Chief economist at Alexander Forbes Investments, Lesiba Mothata, however feels that there is a ‘very minimal’ chance of this happening.

“There is a legal framework that governs foreign exchange reserves management, accumulation and usage,” he points out. “Reserves are invested entirely in foreign currency, for the purpose of dealing with risks offshore. There is a very clear policy framework on when and how it will be utilised.”

He says that the minister cannot make a decision alone to draw down on these reserves.

“An extensive consultation is required with the South African Reserve Bank, which remains independent from political influences,” Mothata points out. “The central bank governor will need to have given the market a directive to this end as it will be a major shift from policy.”

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