In response to growing concerns about potential funding reductions for crucial government initiatives, the South African Reserve Bank (Sarb) has entered into discussions with the National Treasury to explore the utilization of the Gold and Foreign Exchange Contingency Reserve Account. The Institute for Economic Justice, along with economists, academics, and civil society organizations, is advocating for the Treasury to tap into these reserves to avert any financial shortfalls.
Sarb Governor Lesetja Kganyago confirmed these discussions during a media briefing on Thursday, November 23, following the monetary policy committee’s decision to maintain interest rates. Kganyago underscored the involvement of international experts in addressing the complexities surrounding the bank’s capital position.
Currently under scrutiny are the potential withdrawal amount, the timeline for such an action, and the associated costs for the central bank. The careful consideration of these aspects reflects the meticulous approach taken in these deliberations.
Economist Kim Silberman, has proposed two potential avenues for leveraging the Gold and Foreign Exchange reserves. The first entails selling the reserves, while the second involves retaining them and resorting to controlled money printing. Silberman has emphasized the importance of implementing measures to counteract the economic effects of introducing newly printed money, including selling government securities or taking strategic steps to absorb excess liquidity.
Silberman also cautioned against misinterpreting the potential financing at the repo rate, emphasizing that it should be viewed as additional debt, albeit at favorable financing terms, rather than a ‘magic pot of gold at the Sarb.’
As of Thursday, November 23, the Gold and Foreign Exchange Contingency Reserve Account held a value of R497 billion, according to Kganyago. This underscores the significant financial reserves available and the careful consideration being given to how South Africa navigates economic uncertainties.
The forthcoming weeks will provide more clarity on the specifics of this financial maneuver, offering insights into South Africa’s strategy for leveraging reserves to ensure stability in government funding.
Photo (I-ARB Africa)
By: Montel Kamau
Serrari Financial Analyst
29th November, 2023
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