An economist has suggested that parliament should have been consulted by the National Treasury and the Reserve Bank before the two institutions agreed to withdraw R150bn from a special contingency reserve account to reduce some of the country’s debt.
Independent economist and researcher Dr Seán Muller says withdrawals from the country’s foreign currency reserves have left little room for parliament to conduct oversight of the bill that must be passed into law before the drawdown is finalised.
He told MPs at public hearings on Friday that the Gold and Foreign Exchange Contingency Reserve Account Defrayment Amendment Bill ideally should have been discussed by parliament’s finance committee and its appropriations committee, or at a sitting of both.
“The bill itself obviously presents a legal modification to facilitate what is a substantive policy decision. I’m not going to say anything about the legalities per se or the legal manner in which this was proposed or implemented ... but from the perspective of an economist ... the details of how this is actually going to be implemented are quite technical, quite lengthy, and some aspects could be contested,” he said.
When he tabled the 2024 budget speech in February, finance minister Enoch Godongwana also introduced the bill to parliament to allow for the drawing down of R150bn from the gold and foreign exchange contingency reserve account (GFECRA) to reduce the country’s public borrowing over the medium term.
The Treasury and the Bank agreed on a drawdown of R100bn for 2024/25, R25bn for 2025/26, and R25bn for 2026/27 to assist with the public sector borrowing requirement.
Muller said parliament’s role as a legislator and oversight body for the implementation of government policies and interventions could not be reduced to a mere tick-box exercise.
“None of these decisions could be taken without the approval of parliament. So the Treasury is making proposals, the Reserve Bank is a collaborator in these proposals, but none of them can be implemented without the approval of parliament,” he said.
“The particular use that’s being proposed is something that itself could be debated. In this case, the proposal is to use [the funds] to reduce the public sector borrowing requirement.
“There are good arguments to be made for that purpose, but nevertheless, given the size and the magnitude [of the amounts at stake] ... it seems like this is something that should have been the subject of far greater discussion and consultation in advance of the budget proposals,” he added.
How the bill had been introduced, he said, left little room for a broader discussion on how GFECRA could be used in situations where the Treasury and the Bank agreed to allow a drawdown on reserves.
“The Treasury has proposed quite large cuts to expenditure, including key work creation schemes like the [expanded public works programme] and [community work programme]. The question would then be, well, why are cuts being implemented to certain key areas when there is this extra R150bn available from GFECRA in the manner proposed by the National Treasury and the [Bank]?” he asked.
He also expressed some surprise at how the previously little-known reserve account accumulated reserves over decades while the Treasury told South Africans year after year that the money for developmental, social and catalytic programmes was absent.
“Why did it take an idea supposedly generated by a think-tank with little capacity or a couple of investment analysts overseas to put this into the public domain in South Africa? What have these officials been doing? Have they not been paying attention to the reserves accumulating in this account and the benefits it could have to the country on drawing down … on these reserves?”
Benjamin Cronin of the University of Cape Town’s commercial law department said the committee needed to interrogate the purpose of the bill beyond the current drawdown. The wording of the current draft bill needed to be revised, he added.
“This is a very brief ... bill to amend a 2003 act. The purpose of the 2003 act was really to give effect to a transfer from the National Revenue Fund to a notional account at the Reserve Bank to make good on certain identified notional losses.
“The unsettling thing about the draft bill being presented to parliament now is in the act of crediting — in other words, [in] moving money from a notional account to the National Revenue Fund now, parliament is being asked ... to, in a future financial year, undertake legislation to grant the Reserve Bank a direct charge.”
While the draft bill is ostensibly a simple thing, he said in law it was questionable what its purpose was in its current framing.
“It presents an interesting opportunity for parliament to interrogate whether it is simply true when the Treasury alleges that the state is [now] running out of money, but it was not over the last three years when we suffered a huge significant health crisis. We’ve incurred huge cuts to social services across the board, and only in the wake of this is an easily available identified pool of funding even made available for public discussion,” Cronin added.
Cosatu parliamentary liaison officer Matthew Parks said the ANC-aligned labour federation generally welcomed the bill and the use of the funds to mitigate South Africa’s borrowing requirement.
“We do want to support the approach taken to tap into a limited portion of the reserves. We think this will give meaningful support for [the] fiscus and equally ensure sufficient reserves at [the Bank]. We note [the] positive response by markets to this sober approach,” he said.
The possibility of accessing funds to tackle unemployment, grow the economy and provide assistance to Eskom should be considered. He put the option of South Africa establishing a sovereign wealth fund on the table.
“We do think the discussion is a useful discussion, but it doesn’t mean it has to end today per se. The useful discussion to have is to look at what are the appropriate levels of reserves that the Reserve Bank requires. How could they be used in the future to help grow the economy?” he asked.
The motives and criteria for drawing down on GFECRA needed to be firmly established, he said, so that the reserves were not treated as a “piggy bank” or “trust fund” in periods of prolonged low growth and pressure on revenue.
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