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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 would be restructured to free up R150 billion and help ease the cash-strapped country’s borrowing costs.
"Granting government access to unrealised profits could politicise the SARB, and prioritise 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 South African currency’s slump in value against the dollar.
S&P said implementing a rules–based, transparent framework for the transfer of the unrealised profits to the government would help protect from those risks — something the National Treasury says it plans to do, though details are still being worked out.
South Africa’s central bank has fought regular battles to safeguard its independence amid calls to expand its mandate beyond price stability to include employment and economic growth, including from some quarters of the ruling African National Congress.
