S&P Global Issues Warning to the Reserve Bank

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S&P Global Ratings analysts have cautioned against South Africa’s decision to utilize profits from the country’s gold and foreign-exchange reserves to alleviate debt levels, expressing concerns over its potential impact on the independence of the central bank.

Finance Minister Enoch Godongwana recently announced plans to restructure a contingency account held at the South African Reserve Bank (SARB) to release R150 billion ($7.8 billion), aiming to mitigate the nation’s borrowing costs.

Analysts Zahabia Gupta and Frank Gill from S&P Global Ratings emphasized that allowing the government access to unrealized profits could politicize the SARB and prioritize fiscal needs over broader monetary and economic stability. They described the plan as a convenient but limited and temporary solution to South Africa’s enduring fiscal challenges.

The Gold and Foreign Exchange Contingency Reserve Account, where these profits originate, exhibited paper profits of R507.3 billion as of last month, a substantial increase from R1.8 billion in 2006, largely reflecting the depreciation of the South African currency against the dollar.

S&P stressed the importance of implementing a rules-based, transparent framework for the transfer of unrealized profits to the government to mitigate potential risks. The National Treasury has indicated its intention to establish such a framework, although specific details are still under development.

South Africa’s central bank has consistently defended its independence amidst discussions about expanding its mandate beyond price stability to include employment and economic growth—a topic that has been raised by some factions within the ruling African National Congress.