Godongwana’s forex grab threatens Reserve Bank independence – S&P

Enoch Godongwana

South Africa’s decision to tap profits on the country’s gold and foreign-exchange reserves to curb debt levels could impact the independence of the central bank, warned analysts at S&P Global Ratings. 

Finance Minister Enoch Godongwana told lawmakers last week that a contingency account held at the South African Reserve Bank will be restructured to free up R150 billion and help ease the cash-strapped country’s borrowing costs. 

“Granting government access to unrealized profits could politicize the SARB and prioritize fiscal needs over broader monetary and economic stability,” S&P’s Zahabia Gupta and Frank Gill wrote in a note on Wednesday.

“This plan is a convenient but limited and temporary solution to the country’s long-standing fiscal challenges.”

The account, known as the Gold and Foreign Exchange Contingency Reserve Account, showed paper profits of R507.3 billion as of last month – a massive increase from the R1.8 billion in 2006 that reflects the slump in the value of the South African currency against the dollar.

S&P said implementing a rules–based, transparent framework for the transfer of the unrealized profits to the government would help protect from those risks – something the National Treasury says it plans to do. However, details are still being worked out.

South Africa’s central bank has fought regular battles to safeguard its independence amids calls to expand its mandate beyond price stability to include employment and economic growth, including from some quarters of the ruling African National Congress.


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