The GFECRA is not the answer

SOUTH Africa is once again faced with a difficult fiscal decision, and once again, the country is leaning towards magical solutions over sustainable ones. As political pressure mounts to reverse the proposed 0.5% VAT hike, the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) has re-entered public debate. Many are calling for the government to dip into this accounting reserve to avoid raising taxes. But that would be a mistake. GFECRA is not the solution to our fiscal challenges. A VAT increase, while deeply unpopular, is the least damaging and most responsible option available right now.

- TARA ROOS Roos is a Policy Writer, Researcher, and Political Analyst

Understanding GFECRA

The GFECRA is a valuation account within the South African Reserve Bank (SARB) that records the gains and losses on South Africa's gold and foreign exchange reserves due to currency fluctuations. When the rand depreciates, those foreign reserves are worth more in rand terms, resulting in a gain. When the rand strengthens, a loss is recorded. Crucially, the GFECRA is not a pool of liquid cash. It is not a piggy bank.

Settling a portion of the GFECRA balance essentially realising some of those gains requires agreement between the SARB Governor and the Minister of Finance. In 2024, a R250 billion settlement was agreed upon, with a portion transferred to Treasury.

That helped manage debt and reduce borrowing costs. But the scale of that intervention cannot be repeated without undermining SARB's financial integrity.