South Africa running out of time – FirstRand CEO

The South African government is starting to run out of time and money, with the Finance Minister’s use of R150 billion of forex reserves being the first sign that the country is running out.

This is feedback from outgoing FirstRand CEO Alan Pullinger, who made these comments following the release of the banking group’s results for the six months through December yesterday.

FirstRand – which owns FNB, RMB, WesBank and Ashburton Investments – reported a 6% increase in the company’s normalised earnings.

Profit for the period grew by 7% to R20.55 billion, and total net asset value increased by 14% to R190 billion.

Pullinger told Business Day TV after the presentation of the results that the Finance Minister’s Budget Speech last week revealed a stark warning that South Africa’s time is running out.

“The recent budget reading by the minister of finance was not an easy day in the office for him. However, a good budget emerged, which recognised a much greater role for the private sector,” Pullinger said.

“But there was also a stark message in the budget that time is starting to run out.”

“We are already witnessing the first phase of what we refer to as unconventional government financing and debt management as capital markets become tighter and more expensive for SA to access.”

Pullinger explained that the Finance Minister’s use of the gold and forex reserves account indicates that the government is running out of money.

Godongwana announced during the Budget Speech that the National Treasury will restructure reserves held at the Reserve Bank to free up R150 billion over three years.

The account, known as the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), showed paper profits of R507.3 billion as of last month. 

“I think you can see the first sign here. This is really a sign that money is starting to run out,” Pullinger said.

“And the minister of finance, I think he did an excellent job with the Budget. But you can see this was not easy because there was not enough money.”

Forex reserves only delaying fiscal cliff

Pullinger’s comments echo those of economists at Stanlib, who warned that the R150 billion lifeline will have little impact if it is not coupled with a credible plan to grow the economy and cut government spending. 

While using the gold and forex reserves will allow the government to achieve a more sustainable debt path, they said it poses some risk to its debt-reduction efforts. 

Since the funds will be used to reduce domestic financing requirements, this move gives the government room to continue spending with less concern about the unsustainability of the debt trajectory. 

In other words, the government may avoid making the tough decisions needed to rein in expenditure, causing the spending ceiling to grow further without pressure from high debt levels, Stanlib said. 

Furthermore, while the debt reduction is a welcome step, it is a concern that none of the funds have been allocated towards growth-generating projects. 

Instead, the government uses an asset to facilitate ongoing expenditure rather than grow the economy. 

In effect, this could just delay the inevitable – unsustainable debt levels in a perpetually low economic growth environment, resulting in a fiscal crisis.