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South Africa to tap contingency account amid rising debt

Daba Finance/South Africa to tap contingency account amid rising debt
BREAKING NEWSFebruary 21, 2024 at 2:38 PM UTC

TLDR

  • South Africa's government plans to access 150 billion rand from the GFECRA over the next three years to mitigate borrowing amid economic challenges.
  • The move aims to address the grim economic outlook ahead of the general election where the ANC faces potential challenges.
  • Utilizing the GFECRA reserve of 507.3 billion rand is based on its exceptional size surpassing expected losses on foreign exchange reserves.

South Africa's government plans to access 150 billion rand ($7.93 billion) from a central bank-administered contingency account over the next three years to mitigate borrowing, as announced by the National Treasury on Wednesday.

This move comes against the backdrop of a grim economic outlook, casting a shadow over the upcoming general election scheduled for May 29, where the ruling African National Congress (ANC) faces the possibility of losing its parliamentary majority for the first time in three decades.

According to the 2024 budget released by the Treasury, the government will tap into the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), which held a balance of 507.3 billion rand as of January 2024. The decision to utilize this reserve is attributed to its size, which now exceeds any anticipated losses on foreign exchange reserves resulting from rand appreciation.

Key Takeaways

Africa's most industrialized economy has experienced minimal growth over the past decade, with GDP expansion averaging just 0.8% since 2012. This lackluster performance is compounded by weak revenue collection, leading to a steady increase in debt levels and a growing portion of the national budget being allocated to servicing this debt. One of the primary obstacles to economic growth has been persistent power shortages, with frequent and prolonged blackouts severely impacting businesses across all sectors. In 2023, state-owned power utility Eskom implemented some of the most severe power outages in its history, exacerbating the situation. Additionally, South Africa is grappling with a logistics crisis, particularly within state-owned enterprise Transnet, which is struggling to provide adequate freight rail and port services due to equipment shortages and maintenance backlogs resulting from years of underinvestment. Moreover, rampant cable theft and vandalism have further deteriorated the infrastructure, exacerbating the challenges faced by the economy.

South Africa
Economy
Debt Crisis
Rand

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