Committee Report on Budget Hearings; Food Relief Adjustments Appropiation Bill; Gold & Foreign Exchange Contingency Reserve Acco

1. The purpose of the Bill is to seek parliamentary authority for the defrayal of a loss
accrued on the Gold and Foreign Exchange Contingency Reserve Account (GFECRA),
in compliance with section 28(3) of the South African Reserve Bank Act, 1989 (Act No.
90 of 1989) (''the SARB Act'').

2. Sections 25 to 27 of the SARB Act provide for the management by the South
African Reserve Bank (''the Bank'') of a Gold Price Adjustment Account, a Foreign
Exchange Adjustment Account and a Forward Exchange Contracts Adjustment
Account. Profits and losses arising from the revaluation of the Bank's gold holdings and
its trade in gold, from the appreciation or depreciation of the currencies in which the
Bank's foreign assets are held and from forward exchange contracts, foreign currency
loans and export credit reinsurance agreements are recorded on these accounts and
accrue to the Government. The SARB Act provides, in section 28, that the balances in
these accounts shall be transferred at the close of each financial year to the GFECRA,
managed by the Bank on behalf of the Treasury. Any credit balance on this Account is
for the benefit of the National Revenue Fund and any debit balance is a loss for the
Government and shall be a charge against the National Revenue Fund. Section 28(3)
provides that such a loss shall be carried forward in the GFECRA until the Treasury and
the Bank deem it desirable to settle the outstanding balance, and that it shall be defrayed
from money appropriated by Parliament for such purpose.
3. The balance on the GFECRA on 31 March 2002 was a debit amount of
R28 024 million. This amount is subject to an audit investigation currently under way.
The debit balance has accrued since 1995/96 — when the account was last settled —
largely as a result of losses incurred in the Bank's forward exchange operations. At times
the Bank's provision of forward exchange cover has exceeded its foreign assets by a
wide margin, resulting in losses during periods of rand depreciation. By agreement, the
Bank has steadily reduced this exposure in recent years. The net open forward position
has declined from a high of US$23,2 billion in 1998 to US$1,5 billion in January 2003.
In the context of this progress, the Bank and the Treasury have agreed to settle the
outstanding balance on the GFECRA, subject to the findings of the current audit
investigation, over a four-year period.
4. Although the total liability has yet to be finalised, the loss reflected in the GFECRA
balance is of such a magnitude that a partial settlement had to be made during the
2002/03 year. This necessity arises from the impact over time of forward losses on
liquidity in the South African money market, and the need to provide the Bank with
resources that in turn are required for the effective conduct of its monetary policy
responsibilities.
5. An amount of R7 billion (seven billion rands) was issued to the Bank in 2002/03 in
partial settlement of the accrued losses on the GFECRA account. As set out in Chapter
5 of the 2003 Budget Review, Treasury proposes to settle the outstanding balance over
the next three years, provisionally projected at R7 billion a year.
6. The losses on the GFECRA are a statutory obligation of Government and
Government is required to settle the losses. Only the timing of the payment is subject to
an agreement between the Bank and Treasury. As the obligation to settle the debit
balance is prescribed in the SARB Act and the settlement is accordingly nondiscretionary,
the Bill proposes that the defrayal should be a direct charge.
7. Parliamentary authority is accordingly sought to regard the defrayal of losses on the
GFECRA as a direct charge against the National Revenue Fund, despite anything to the
contrary contained in any law.

Departments and bodies consulted:
South African Reserve Bank

Financial implications for State
An amount of R7 billion will be charged to the National Revenue Fund in the 2002/03
year. Expenditure of R7 billion a year is anticipated in each of the 2003/04, 2004/05 and
2005/06 years.

Appendix 3:
MEMORANDUM ON THE OBJECTS OF THE PENSIONS (SUPPLEMENTARY) BILL, 2003
An employee of the Department of Transport, Mr Clarke, suffered a massive stroke in
1984 while working on the South African base on Marion Island. This resulted in Mr
Clarke being paralysed from the nose down and being diagnosed as having complete
quadriplegia. His present pension does not cover his most basic care.
On 6 March 2001 Mr Clarke petitioned Parliament for additional pension benefits.
The Portfolio Committee on Private Members' Legislative Proposals and Petitions
recommended to the National Assembly that additional benefits be granted to Mr Clarke.
On 15 March 2002 the National Assembly granted Mr Clarke's petition.
In terms of section 213(2)(a) of the Constitution money may be withdrawn from the
National Revenue Fund in terms of an appropriation by an Act of Parliament.
Accordingly, the additional pension benefits granted to Mr Clarke by way of petition
may be paid from the National Revenue Fund only if authorised in an Act of Parliament.
For this reason the Pensions (Supplementary) Bill is proposed.
On 15 March 2002 the National Assembly granted Mr Clarke additional pension
benefits on the following terms:
''That Mr G C Clarke be granted—
* a pension of R1 500 per month, in addition to the pension he receives at
present;
* back pay of this pension for a period of six months.''
This Bill proposes the authorisation of the aforementioned additional pension benefits to
Mr Clarke, from the National Revenue Fund.