The national budget indeed favoured fiscal continuity and consolidation (over any pre-election populist decisions), as anticipated, and in contrast with the consensus forecasts for sustained and significant fiscal deterioration.

Government intends to make a larger, immediate withdrawal from the gold and foreign exchange contingency reserve account (GFECRA) than generally expected. This is essentially the unrealised profits on SA’s gold and foreign exchange reserves, typically from rand depreciation over time. It plans to use R100 billion from the GFECRA in FY24/25, and R25 billion in each of FY25/26 and FY26/27.

This is reducing government’s borrowing requirement and therefore its debt burden. However, it was disappointing that only guiding principles on how the funds will be used were provided in the Budget, with (only) an undertaking that it will eventually be “formalised through legislation”. The guiding principles in the Budget are pragmatic, but we would’ve preferred the GFECRA only being used once its use is legislated, to ensure that future use will remain prudent.

Nevertheless, despite this disappointment (of using GFECRA before its longer-term use has been legislated) and persistent risks (to both the near-term and medium-term spending and revenue forecasts), the fiscal prognosis is at least somewhat better than investors expected. The Budget confirms government’s commitment to fiscal consolidation. Therefore, financial markets are likely to react positively to the Budget. While there might be a strong initial response to better-than-expected fiscal and funding metrics, this may partly unwind as investor concern about the aforementioned factors (upside spending risks and downside revenue risks) persists.