R497 billion Reserve Bank forex reserves won’t solve government’s problems

The Reserve Bank’s R497 billion gold and foreign exchange reserve account will not solve the government’s financial problems as they are a result of stagnant economic growth and not a lack of access to funds. 

Reserve Bank Governor Lesetja Kganyago told reporters after last week’s Monetary Policy Committee (MPC) meeting that the account is not a “pot of gold”.

“The notion that there is some pot of gold hidden in the Reserve Bank and that all that is needed is to figure out how to get into that pot of gold and, bingo, all of our problems are solved, is very, very simplistic and at worst is very reckless,” Kganyago said. 

The Reserve Bank oversees the gold and foreign exchange reserve account, which contains unrealised profits or losses on the reserves that are incurred due to exchange rate fluctuations.

While the gains – and losses – accrue to the government, the Treasury has refrained from tapping them so far.  

Pressure has been placed on the Treasury to tap these reserves to address the country’s severe fiscal challenges, particularly its growing debt burden and interest payments. 

Deputy Reserve Bank governor responsible for financial markets Rashad Cassim pointed out to Business Times that its balances “are not a windfall that can be enjoyed with no further costs”. 

The amounts are unrealised gains — paper entries in a ledger whose value can be realised only by selling the underlying asset.

The value of the underlying assets is highly volatile, fluctuating by as much as R20 billion in a week. 

Kganyago said the Reserve Bank and Treasury officials were discussing the issue, but it was complex and would take time to resolve. 

The Reserve Bank could print money to release resources, but it would need to be recapitalised, which could only come from the taxpayer.

Kganyago also warned that drawing from the reserves may scare investors away, increase financial instability, and raise concerns about the country’s ability to pay its debt obligations. 

“Somebody is going to say, ‘Will they be able to settle their foreign- currency-denominated debt? Will they be able to pay for imports? If they experience a massive capital outflow, will they be able to meet their obligations? I don’t think so. I am running for the hills,’” Kganyago said. 

Kganyago added that the Reserve Bank is consulting international experts on how to draw from the reserves without negatively impacting its capital position.