The National Treasury of South Africa introduced a significant reform to the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) in their 2024 Budget Review. On Tuesday it issued a statement to clarify the key points regarding the reform, accounting and its implications:
New settlement framework:
In June 2024, a new settlement agreement for GFECRA was signed by the Minister of Finance and the Governor of the South African Reserve Bank (SARB). This agreement introduces a structured allocation of funds across three designated “buckets.”
Bucket allocation explained:
The first bucket is GFECRA, which is designed to maintain sufficient reserves to manage fluctuations in exchange rates. Without this stabilisation, the National Treasury would be obligated to cover any incurred exchange rate losses.
Distribution breakdown:
A total distribution of R250 billion was announced under the new agreement. Of this amount, R100bn is allocated to the SARB contingency reserve account, while R150bn will go to the National Treasury in three tranches (R100bn in 2024/25, and R25bn in both 2025/26 and 2026/27).
Impact on government’s borrowing:
The funds received by the National Treasury will be used to decrease government borrowing and to curb the growth of public debt. This strategic move is expected to positively influence the nation's fiscal health.
Balance sheet transactions:
The R250bn distribution from GFECRA is recorded as a return on investment rather than government revenue, emphasising the importance of balance sheet integrity. The funds flow from the SARB into the government’s account (National Revenue Fund) to firm up financial commitments.
Compliance with financial regulations:
The reforms comply with the Public Finance Management Act (PFMA) and the GFECRA Defrayal Amendment Act, ensuring that the allocation and flow of funds into the SARB contingency account are recorded properly, even as they do not count as revenue.
Monthly reporting of cash flows:
The cash flow position of the government is regularly disclosed in monthly statements, detailing the inflow of funds and their subsequent allocations. This transparency is crucial for evaluating the financial well-being of the government.
Future fiscal framework:
The government's budget will continue to be presented on an adjusted cash basis of accounting. This ensures that all transactions are processed and recorded promptly in the financial system, improving fiscal accountability.
Overall, the GFECRA reform aims to enhance the financial stability of South Africa's economy while ensuring responsible management of public funds.
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