Reserves’ influence on South Africa’s total domestic debt: evidence from GFECRA

This research tackles a gap in existing literature by offering empirical insights into the effectiveness of utilizing the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) in overseeing total domestic debt, thereby enhancing our comprehension of fiscal policy implications and debt management strategies in South Africa. This study delves the influence of leveraging the GFECRA on total domestic debt in South Africa by analyzing time series data from January 1, 1990, to October 1, 2023. Employing the Vector Error Correction (VEC) model, the results reveal a negative lag impact of GFECRA on the present government debt levels. Conversely, disturbances to the GFECRA reduce total domestic debt, albeit at a diminishing pace. Moreover, GFECRA accounts for 56.5% of the fluctuations in domestic debt over a span of 24 months. Fiscal authorities can use a GFECRA amounting to R150 billion throughout the 2024 Medium-Term Expenditure Framework (MTEF) to oversee total domestic debt. Future research should investigate the mechanisms for managing total domestic debt, particularly within South Africa. This research provides critical empirical evidence on the role of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) in managing total domestic debt in South Africa. By analyzing data spanning over three decades, the study reveals the negative lag effect of GFECRA on current government debt levels and demonstrates that disturbances to this account can effectively reduce domestic debt. This work significantly enhances our understanding of fiscal policy and debt management strategies, offering actionable insights for fiscal authorities. By quantifying the impact of GFECRA, the study underscores its potential as a strategic tool for stabilizing domestic debt, particularly under the 2024 Medium-Term Expenditure Framework (MTEF).