Finance Minister Enoch Godongwana will have his work cut out as he balances South Africa’s future spending priorities against subdued foreign reserves.
South Africa’s foreign exchange liquidity continues to slump as gross reserves fell to a 4-month low in January amid a very strong US dollar
The SA Reserve Bank (SARB) yesterday said the foreign exchange reserves position declined for a second consecutive month in January, to $57.19 billion in January from $57.59bn a month before.
This was the smallest foreign exchange reserve since September 2021.
The SARB said the decline was due mainly to the decline in the US dollar-denominated gold price, the appreciation of the US dollar against other currencies, and foreign exchange payments made on behalf of the government.
It said the international liquidity position also fell, declining by $304 million to $55bn in January.
The SARB attributed the decline to higher foreign exchange payments made on behalf of the government during the period.
Nedbank economist Liandra da Silva said the gross reserves could decline further during this year if the US Federal Reserve continues hiking interest rates.
“While reserve holdings may be maintained at current levels, they are likely to decline slightly over the coming months as US Fed’s monetary policy normalisation boosts the US dollar and weighs on the price of gold.”
Godongwana will table his maiden Budget Review later this month, under immense pressure from socio-economic spending requirements amid rising job losses.
What will be Godongwana’s saving grace is the improved trade surplus and budget surplus.
South Africa continued to see trade surpluses last year far exceeding those of 2020, with the trade balance for the year as a whole at R441bn in 2021, versus R272bn in 2020.
The country’s budget surplus for December was also around R40bn, with State revenues swelling to R212bn.
Investec chief economist Annabel Bishop said the fiscal deficit at R219.1bn for the first three quarters of 2021/22, with the main budget deficit estimated at -R410bn this year, the actual outcome was likely to be less, closer to -5.0 percent of GDP than -6.6 percent.
“The Budget is however not expected to result in any upgrades in SA’s credit ratings, coming in neutral overall as revenue overruns are eaten up by higher expenditure, particularly further social support, and so is likely to be fairly rand neutral,” Bishop said.
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