Gold and Foreign Exchange Contingency Reserve Account Defrayment Amendment Bill: public hearings

Standing Committee on Appropriations

15 March 2024
Chairperson: Co-Chairpersons: Mr S Buthelezi (ANC) and Ms D Mahlangu (ANC, Mpumalanga)
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Meeting Summary


The Standing and Select Committees on Appropriations held a joint meeting to receive submissions from stakeholders on the 2024 Gold and Foreign Exchange Contingency Reserve Account Defrayal (GFECRA) Amendment Bill. During his February Budget Speech, the Minister of Finance introduced this bill, which is intended to facilitate the drawing down of R100 billion from the GFECRA account to reduce the public sector borrowing requirement.

COSATU welcomed the Bill. The Federation supported the government's pragmatic approach to using surplus reserves. It noted that the reserve fund is not unlimited, and the draw-down should be used ‘strategically’ to relieve pressure on the fiscus, stimulate the economy, and reduce unemployment. It also stated that this should be used as an opportunity to discuss the establishment of a Sovereign Wealth Fund.

Dr Seán Muller supported the proposal to dip into the reserve funds. However, he raised several procedural and substantive concerns. He pointed out that it is illogical to process the GFECRA Bill separately from the fiscal framework. He indicated that the origins of the Bill were unclear and suggested that the consultation process could be strengthened by discussing such a proposal around the time of the MTBPS, which was not done, so that the Committees had more time to consider the proposals. In response to the question on how the government could prevent dipping into the reserve funds once more, he stated that legislation could be passed by the Parliament to prevent further draw downs on the funds, but this could be repealed or changed by the next Parliament. Ultimately, there was no way other than the usual democratic processes. This had an upside, as one did not want to overly tie one's hand.

Adv Ben Cronin submitted that the Bill misconstrues the status and operation of the Gold and Foreign Exchange Contingency Reserve Account (the ‘Account’). He believed that clarity should be sought on the purpose of the Bill. The current wording of the draft Bill was harmful, as it intended not to enlarge the national fiscus and would instead sit as a direct charge against the department’s account. Furthermore, it will enlarge the claim available to the SARB against the NRF, not to cover losses—which are already indemnified—and maintain an arbitrarily determined reserve.

Members suggested that Parliament should set the criteria for the government to access the reserve funds. They asked why the Bill was not introduced during the MTBPS. A Member proposed that the Committee obtain additional legal advice on the Bill's desirability.

Meeting report

Co-Chairperson Buthelezi welcomed all those who were present in the meeting.

He said the meeting's purpose was for the two Committees to receive submissions from stakeholders on the 2024 Gold and Foreign Exchange Contingency Reserve Account Defrayal (GFECRA) Amendment Bill. The Minister of Finance presented this bill during the Budget Speech and referred it to both Committees for processing.

He highlighted that the meeting started early because the Select Committee had its meeting at 10:00. He asked if the Committee had received any apologies.

Mr Andries Maubane (Standing Committee Secretary) indicated that no apologies were received from Members of the Standing Committee.

Mr Lubabalo Nodada (Select Committee Secretary) mentioned that no apologies were received from Members of the Select Committee.

Co-Chairperson Buthelezi invited the stakeholders to present to the Committee, starting with Dr Muller. Each presenter would be allocated fifteen minutes. Such hearings remained important as they allowed Members to hear the public’s views on matters affecting them.

Dr Seán Muller Submission

Dr Seán Muller (Researcher and Independent Economist) took the Members through his submission.

On the face of it, this seems like a reasonable proposal based on its simple fiscal merits.

However, there were a number of concerns of both a procedural and substantive nature:

- The processing of the GFECRA Bill will occur after the processing of the Fiscal Framework and Revenue Proposals by the finance committees of Parliament. In processing the fiscal framework in accordance with the requirements of the Money Bills Act, the finance committees have already taken a position on the balance of expenditure, revenue and borrowing, as well as on the proposed debt path contained in the 2024 Budget Review. However, the proposed fiscal framework in the Budget Review is based on the GFECRA transaction. Strictly speaking, therefore, it is illogical to process the GFECRA Bill separately from the fiscal framework.

- The origins of the Bill is unclear; whether it was attributed to the Institute for Economic Justice, or a working paper done by foreign finance consultants and academics in the United Kingdom. Many questions arise from this:

One, what the involvement of the SARB was in generating the GFECRA.

Two, why had that not been done within the relevant public sector structures and did not involve the broader public.

Three, if both the department and SARB believed that the surplus built up in the GFECRA was excessive, why had it been allowed to happen in the first place.

Four, whether neither the department nor SARB consider utilising the funds in the GFECRA to offset the national debt obligations or to offset the harsh expenditure cuts

Five, why the proposal was tabled at this particular time

- On the basis of the publicly available facts, it appears that the SARB and National Treasury deliberately allowed a very large ‘surplus’ to grow in the GFECRA while simultaneously proposing and implementing large cuts in public expenditure on the basis that those are necessary for fiscal consolidation. Consideration of the possibility of using some of the GFECRA ‘surplus’ was left as late as possible in order to maintain planned expenditure cuts before the election. The proposed use of the GFECRA transaction to reduce debt appears intended to increase fiscal space after the elections. A more obvious use would have been to prevent expenditure cuts and use the remainder of the amount to reduce debt obligations. One may then interpret the sudden and relatively dramatic nature and timing of the GFECRA proposal as being linked to unstated political interests rather than purely technical considerations.

(See Submission)

Adv Ben Cronin Submission

Adv Ben Cronin, Academic at UCT, took the Committee through his submission.

-The Bill misconstrues the status and operation of GFECRA (the account is established in terms of Section 28 of the SARB Act and is in essence a notional account by the Reserve Bank for the benefit of national government)

-The Bill wrongly envisages granting an additional direct charge in favour of the SARB when the money in question can and on the apparent information provided has already credited to the National Revenue Fund, as Section 28(2)(b) of the Act states that any profits in the Account which are carried forward at such times as the Treasury and the SARB may deem desirable, be credited to the State Revenue Fund (or National Revenue Fund).

-The section also creates a mechanism for crediting the National Revenue Fund (NRF) without the need for additional legislation

-Considering this, he felt that it is unnecessary and counterproductive for Parliament to consider an additional direct charge being enacted

(See Submission)

COSATU Submission

Mr Matthew Parks (COSATU Parliamentary Coordinator) took the Committee through the presentation.

-COSATU supported the Bill and its purpose to alleviate pressures on the country’s fiscus. At the same time, it recognised the need for the SARB to maintain adequate reserves to protect the value of the Rand and economy

-It believed that the right balance had been achieved in the relief amounts of R100 billion for 2024-2025, R25 billion in 2025-2026 and 2026-2027

-It advocated for the funds to be utilised efficiently in several areas of the economy, particularly in providing debt relief for Eskom and Transnet, as both are struggling to meet their debt requirements. In doing so both entities would be able to invest in their infrastructure and improve performance, which would have a positive effect on all sectors of the economy

-It proposed that Parliament initiate discussions on the development of a sovereign wealth fund going forward, similar to Norway and the United Arab Emirates, where the state can place capital in investments and under a dedicated fund to grow and generate revenue that can then be used for the fiscus and other strategic needs of society

-It proposed that legislation be drafted to this effect and tabled in Parliament during the Seventh Parliament


(See Submission)

Following the presentations, Co-Chairperson Buthelezi opened the floor for discussion.


Mr O Mathafa (ANC) said that Dr Muller’s submission emphasised the need for broader consultations around the Bill now, since those between the department and SARB had already taken place, in line with the Constitution. He asked the presenters if they had any suggestions on strengthening the consultation process so that all stakeholders were satisfied.

During a previous engagement, the department informed the Committee that such an intervention usually took place when a country’s economy is characterised by lower revenue collection and higher spending, leading to an increase in the gross borrowing needs of the country. It added that the intervention will be used to reduce borrowings and the country’s debt servicing costs in order to free revenue sources, giving the state the capacity to deliver on its commitments and the needs of society.

With that in mind, he asked Mr Cronin if the department’s decision to tap into the reserve funds was thus justified.

He fully supported COSATU’s presentation.

Mr W Aucamp (DA, Northern Cape) highlighted Standard and Poor’s (S&P) as well as Fitch’s warning that the department’s decision could pose a threat to the independence of SARB, as the country would be utilising paper money to pay for expenses – an official from the S&P and Fitch stated that the government was obtaining unrealised profits from the SARB, which may politicise it. Both agencies argued that the government prioritised fiscal requirements above broader monetary economic stability. This, he stressed, should be seen as a warning.

Given S&P’s recommendation that rules be attached to the transfer of the funds so as to minimise risk, he asked what proposals could be made in this regard.

Several warnings were made to the department that the tax windfall, owing to a spike in commodity prices, experienced in the country could not be viewed as a long-term solution to the state’s economic troubles as its effects would only be temporary.

He felt the government should not access its reserves to cover expenditures that should have been utilised wisely through good governance. He added that had such good governance existed, the department would not have had to dip into its reserves.

Mr F Du Toit (FF+, North West) asked how long it would be until the department decided to dip into the contingency reserves to cover the country’s debts, what steps the government would take to prevent it from continuously using the reserve funds, and if there were any estimates as to when the government would need to access the reserves once more.

Mr D Ryder (DA, Gauteng) did not believe that MPs were up to speed on the effect this decision would have on the economy. As such, he suggested that the department and SARB brief the Committee on how the money would be utilised. 

He asked the presenters if they had conducted any modelling on the inflationary impact of the R150 billion and its long-term impact.

Mr X Qayiso (ANC) supported Mr Mathafa and COSATU’s view that the department had to dip into the reserve funds, especially given the deteriorating economic conditions. As such, he wondered what underpinned rating agencies' fears that this decision would politicise the SARB and argued that these be put aside.

He asked COSATU if it had any further suggestions on utilising the reserve funds.

He recommended that the department take steps to ensure that it does not become commonplace to dip into the reserves in the future.

Mr A Shaik Emam (NFP) thought that important concerns were raised in the presentations, including the timeframe allocated to Parliament to process the Bill. Many of the Committees have questioned the purpose of this public consultation exercise if the department had already taken its decision. To him, this seemed like a tick-box exercise, as the limited time frame did not allow Parliament to intervene and make an informed decision on whether the decision was correct.

He asked what role Parliament usually plays in such a decision and whether the executive has accumulated too much power over the years.

He, too, wondered why the decision was not made sooner, given that the high debt-servicing costs had been known for some time.

In addition, he asked the presenters if this decision was not just another form of government borrowing, which would also deplete the cash reserves. By depleting these reserves, the country was marching towards a fiscal cliff, which would have devastating effects on the economy. He added that the rise in debt to gross domestic product (GDP) has repeatedly been raised in the Committee and has not been taken seriously.

He asked the presenters if this decision would address the root cause of the country’s deteriorating economic condition or if other measures could be taken.

He disagreed with COSATU’s submission that monies were not being borrowed for consumption, as a significant percentage of the borrowings have been going towards consumption. If the country continued on this path and the economy collapsed, the entire employment market would follow. He asked if this was not a matter for consideration.

In his understanding, the reserves would not be used to reduce the country’s debt burden but rather to reduce borrowing. It is estimated that 40 percent of government goods and services are lost because the value for money is not obtained. Considering this, he asked the presenters if preventative measures could be implemented so there would be no need to dip into the reserves going forward.

In his final question, he asked when the remaining R350 billion reserves would also be tapped into and used by the department.

Mr N Kwankwa (UDM) indicated that he did not favour the government tapping into the reserves but felt that it was necessary under the current conditions. Notwithstanding, he agreed that strict conditions should be attached to the use of the funds, especially as this has not been suggested by the department, nor had there been a parliamentary process to agree on how much money should be utilised. He added that steps should be put in place to resolve the country’s current economic conditions, so that the reserve funds are not continuously tapped into, setting a wrong precedent.

Mr Y Carrim (ANC, KZN) appealed to Members not to make sweeping statements, given the complexity and novelty of the matter. To him, it seemed that the rating agencies and other experts were not against the decision taken by the department.

Despite this, he noted that Members were united in their view that Parliament should have had a greater say in the matter – but nothing prevented them from doing that in their report. On this, he suggested that the reports request for certain criteria to be set by the department for the drawing of the reserve funds within the next 12 months.

The debate on whether Parliament should be consulted before or not was another matter – it has been raised by the institution over the years. In fact, some time back a study was done on how established democracies dealt with this. Research done by Parliamentary researchers found that the department’s decision to increase the value added taxes (VAT) in the Budget Speech before consulting Parliament was correct, so as to not scare the markets.

Nevertheless, Parliament should have a bigger say in some of the decisions taken by the executive. At the same time, he pointed out that the Money Bills Act did provide it with more say than has been suggested.

Furthermore, he wondered if Parliament had the expertise to clearly state why it may reject a decision taken by the department like this.

Concerning the short timeframe allocated to Parliament to consider the matter, he indicated that if the time were extended for Parliament to deliberate on matters of appropriation after the February Budget Speech, Members would have to work into July uninterrupted, reducing the constituency period. With this in mind, he recommended reviewing the appropriation process in the next parliamentary administration so that enough time is allocated for processing without disrupting the Parliamentary calendar.

Co-Chairperson Buthelezi appreciated the input the presenters gave, which he believed to be informative.

Since Members and stakeholders were in agreement that more time had to be given for consultations, the question was, he thought, what the compromise would be. Both Committees have raised this matter with the department, and have asked for it to notify Parliament before the decisions are presented in the Budget.

In addition, he agreed with the call for a set of criteria to be formulated for when the department should be permitted to dip into the reserve funds.

He explained that this intervention had nothing to do with the SARB's independence as an agreement regarding the department utilising the reserve funds had been entered into between the Governor and Minister of Finance. As such, the SARB can still conduct its monetary policy independently.

He further explained that SARB is independent in carrying out the government's policy mandates, as the Minister of Finance has no say in, for instance, increasing the interest rate.

It was not true that the government had only taken money from the reserve account as the NRF allocated R28 billion to it in 2002 when it faced financial problems, he reminded Members.

He disagreed with COSATU’s submission that the money should be used to bail out Eskom and Transnet, as the former had provided a debt relief of R254 billion in the previous year.

However, he agreed with Dr Muller’s concern that the appropriation was being made before the fiscal framework was approved, and proposed that it be looked into. He highlighted that during a prior discussion, it was agreed that the Bill should be tabled before the Appropriations Committee.

On the origins of the idea, he pointed out that this issue had been raised for some time, even during Committee discussions. Proponents of this idea may have consulted economists first before proposing it. For him, the importance of the idea was whether it would assist the country and what the risks associated with it were.

He felt that Mr Cronin’s input focused more on the legalities, which he conceded to. However, he thought it more important for the Committee to have over-legislated than to be found not to have legislated, as Parliament would not want to be found to have acted ultra vires. He asked if there was any harm in the Committee making this choice.

In his final question, he asked Dr Muller for his opinion on the argument that the R150 billion should not be limited only to debt repayments, as it could achieve superior socio-economic outcomes.

Dr Muller indicated that he had two general points to make. One, that he was in favour of the department’s proposal to dip into the reserve funds. However, this did not negate the importance of the origins of the problems that led to it, especially for those concerned about the broader context of fiscal policy and parliamentary oversight. An example of this is the question of why the state did not draw from its reserves on broader definitions of the public balance sheet – this was not met in a receptive way by the department or SARB.

He said that the consultation process could be strengthened by discussing such a proposal around the time of the MTBPS, which was not done so that the Committees had more time to consider the proposals. If there had been no rush, it could have been proposed in the coming MTBPS.

Regarding the questions on the independence of the SARB, he did not believe that this proposal compromised the independence of the SARB. The status of the SARB was quite different from other countries and could be discussed.

He argued that COSATU’s idea of a sovereign wealth fund was unusual in the country’s context and that further debate on the idea should be had in Parliament at some point. In Norway, a sovereign wealth fund was established due to significant oil revenues, which has created issues related to its currency.

Touching on the rating agencies' concerns about the proposal, he indicated that while they always tend towards the conservative side of the spectrum, there was much to be concerned about.

In response to the question on how the government could prevent dipping into the reserve funds once more, he stated that legislation could be passed by the Parliament to prevent further draw-downs on the funds, but this could be repealed or changed by the next Parliament. Ultimately, there was no way other than the usual democratic processes. This had an upside, as one did not want to overly tie one's hand.

Concerning whether there had been any monitoring of the inflationary impact, he said there had not been. He believed that the entities have more capacity to conduct the modelling and provide it to Parliament, particularly the Parliamentary Budget Office and, in relevant cases, the Financial Fiscal Commission (FFC).

On how the department and SARB proposed utilising the funds, he mentioned that this was important; for instance, it should be explained why there was an R250 billion buffer and the modelling behind it.

Regarding the comment that the suggestions of SARB being politicised be put aside, he stated that whilst this was true, the concerns on how the idea came about and why at this particular time still remained. In addition, he asked why this proposal was not made at an earlier stage and if there were benefits to reducing the overall borrowing requirements and costs.

On whether this was not borrowing in a different form, he did not believe it was, even though it was drawn down on the country’s reserves. Nonetheless, there should be beneficial effects for the country in the medium to long term.

He stressed that the department and the SARB were responsible for explaining the technicalities to Members so they were better informed and could approve the decisions.

In response to the question on the opinion that the R150 billion should not be limited only to debt repayments as it could achieve superior socio-economic outcomes, he said it would make sense for some of the planned expenditure reductions to be reduced on the basis of the amount being drawn from the account, but, this was seemingly a political decision and had to be done by MPs. What concerned him was that the decision had been made in advance, with Members only being able to accept or reject whether the GFECRA transfer would happen and if there would be a drawdown to reduce the borrowing requirement.

He added that there are two questions about this: one, should the money be taken from the GFECRA surplus, and two, how should it be used?

Adv Cronin, on what the harm of the present Bill was, indicated that in terms of Section 28 (2) of the SARB Act, currently, a mere agreement between the National Treasury and Reserve Bank was sufficient for the crediting of money, which is notional, from the GFECRA account to the NRF. The description attached to the Bill entailed that it is an administrative decision, not new legislation, he added.

Instead of covering losses, the Bill initiates a new concept of guaranteeing a reserve. In other words, the national fiscus is guaranteeing a certain reserve amount in the GFECRA account, he pointed out. Thus, the draft Bill would be a subtraction from the budget, not an addition to. Moreover, its purpose was not linked to the Reserve Bank, which already covers losses in the notional account. For that reason, he encouraged the Committee to question the basis and necessity of the Bill.

He believed that clarity should be sought on the purpose of the Bill. The current wording of the draft Bill was harmful, as it intended not to enlarge the national fiscus and would instead sit as a direct charge against the department’s account. Furthermore, it will enlarge the claim available to the SARB against the NRF, not to cover losses—which are already indemnified—and maintain an arbitrarily determined reserve. He felt that this should be interrogated.

On what rules should be attached to the transfer of the R150 billion, he mentioned that the correct provision to look at was Section 28 of the SARB Act, which illustrates that this is an administrative decision and not a legislative process. While appropriations are a parliamentary discretion, once they are passed, the department and SARB decide how they are financed down the line.

The fact that the country is running short of financial resources, limiting the public sector from spending through appropriations, has been brought into sharp focus, he noted. Thus, it was important to ask whether the public could accept the department’s narrative that the current presented financial constraints are as described when such a reserve is to be maintained.

Mr Parks outlined that COSATU supported the Bill because it would enable the state to fulfil various difficult and competing demands.

COSATU was confident in the department's and SARB's discussions and due diligence in arriving at the decision.

He wondered what the alternatives would have been if the government had not taken this decision, given the revenue shortfall in the MTBPS.

He agreed with the proposal for criteria to limit the government from continuously accessing the fund. However, he highlighted the importance of the debate, especially around the right amount and the future use of the surplus amounts.

He stressed that COSATU believed that discussions around a sovereign welfare fund should begin, considering the pressures on the state’s fiscus and that revenue is mainly obtained through different taxes. If the state could invest in the economy, like the Public Investment Corporation (PIC), it would increase economic productivity and generate a return on investments. Long-term, the Norwegian model could be followed to boost the country's economic growth, set positive transformation agendas, and also ease the pressure on workers.

COSATU did not see the decision as a threat to the SARB’s independence, as the Constitution was clear on this.

While COSATU accepted that Eskom was provided debt relief in the previous year, it is still believed that the money from the reserve fund could be used smartly to ease the pressures on both it and Transnet, which could significantly impact the economy.

Though COSATU acknowledged the concerns raised on the timeframe given to the Committee to process the Bill, it thought that in future, a debate could be had with the PIC on the right uses of the reserves on how to assist the state in fulfilling its developmental mandate.

He said COSATU also supported the call for strict criteria to be adopted.

Mr Carrim proposed that the Committees investigate why the Bill was not introduced during the MTBPS. The committees raised the same question during the tabling of the VAT increase, and the department indicated that it could not say this beforehand to avoid panic from consumers and businesses. In this case, that excuse would not apply.

Parliament should set the criteria for the government to access the funds.

Co-Chairperson Buthelezi agreed with the suggestion that bills such as these be introduced during the MTBPS and indicated that this recommendation would be included in the Committee report.

The committees will request the department to provide written responses to some of the issues raised, especially those related to the necessity of the Bill.

There was broad agreement that the country needed economic growth to resolve issues of unemployment and inequality.

He thanked the Members and Committee support staff for their conduct during the joint sittings during the entire parliamentary term.

Mr Kwankwa indicated that the Committee should obtain additional legal advice on the Bill's desirability. He asked what the ideal time frame for obtaining that information was.

Co-Chairperson Buthelezi requested that the Committee allow the department until Monday to submit its findings, after which Members would consider them.

He asked if there were any announcements.

Mr Nodada indicated that the Select Committee would be briefed by the FFC next Wednesday.

Mr Maubane mentioned that the Standing Committee would meet on Wednesday to adopt the three reports.

Mr Kwankwa thanked the Co-Chairpersons for their leadership during this parliamentary term.

The meeting was adjourned.


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