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The GFECRA account is established by the South African Reserve Bank Act 90 of 1989, as amended (SARB Act). The SARB Act empowers the Minister of Finance and the SARB Governor to settle balances by mutual agreement. The specific settlement arrangements are captured in an agreement signed by the Minister and the Governor.
In 2003, GFECRA had a negative balance of R28 billion. This was settled by National Treasury as required by the SARB Act. Over the subsequent two decades, the GFECRA balance grew to over R500 billion due to growth in South Africa’s holdings of foreign exchange reserves and sustained rand depreciation.
In 2024, the SARB and National Treasury agreed on a reform to the GFECRA settlement agreement. The core components of the reform were outlined in the 2024 Budget Review.
The principles underpinning the new agreement are as follows:
The initial distribution to National Treasury will not be funded by sales of foreign exchange reserves. Rather, this will be financed by new SARB liabilities, mainly bank reserves, discussed in more detail below. This GFECRA reform affects how foreign currency reserves are financed, but not the quantity of foreign exchange reserves South Africa holds. In other words, it changes the liability side of the SARB’s balance sheet, not the asset side.
In future, the SARB will also not sell foreign exchange reserves to fund GFECRA distributions, so long as these reserves are below estimated adequacy levels.
The initial GFECRA buffer is being set at R250 billion. By minimising the risks that could cause the GFECRA account to turn negative, this buffer will help protect National Treasury from having to pay out to the account to make it positive again.
The SARB contingency reserve buffer will receive an initial amount of R100 billion. The goal of this transfer is to protect the SARB’s policy solvency, defined as the flexibility to pursue mandates without concern for the financial position. The contingency reserve buffer will be replenished from excess GFECRA balances when available. This buffer is meant to be large enough to last through extended periods when these top-up funds from GFECRA are not available.
National Treasury will receive an initial amount of R150 billion. As detailed in the 2024 Budget Review, this will be paid out in three tranches of R100 billion, R25 billion and R25 billion in the 2024/25 financial year and the subsequent two financial years respectively. The liquidity management costs of these payouts are expected to be around R8 billion in 2024, R10 billion in 2025 and R12 billion in 2026. The exact costs will depend on the level of short-term interest rates and will recur indefinitely.
The GFECRA buffer is being set at R250 billion. By minimising risks that the GFECRA account turns negative, this buffer will help protect National Treasury from having to be paid out to the account to make it positive again.
The SARB contingency reserve buffer will receive R100 billion. The goal of this transfer is to protect the SARB’s policy solvency, defined as the flexibility to pursue mandates without concern for the financial position. The contingency reserve buffer will be replenished from excess GFECRA balances when available. This buffer is meant to be large enough to last through extended periods when these top-up funds from GFECRA are not available.
National Treasury will receive R150 billion. As detailed in the Budget Review, this will be paid out in three tranches of R100 billion, R25 billion and R25 billion in the 2024/25 financial year and the subsequent two financial years respectively. The liquidity management costs of these payouts are expected to be around R8 billion in 2024, R10 billion in 2025 and R12 billion in 2026. The exact costs will depend on the level of short-term interest rates and will recur indefinitely.
The SARB will replace a portion of the GFECRA liability on its balance sheet, with new liabilities. Unlike GFECRA, these will be interest bearing. The most important liability will be excess reserves of banks, which are cash balances deposited at the SARB and generally remunerated at the policy rate. This means the liquidity surplus will increase. The SARB will also use other tools, such as funds from the Corporation for Public Deposits (CPD).
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