Treasury bets on export earnings from gold to offset higher oil imports

National Treasury says it is betting on gold prices pulling some weight against the high cost of oil, as the fallout from the Middle East war threatens to tighten its grip on emerging economies like South Africa.

Markets across the world are scrambling to shield themselves from the shrapnel of the conflict, which could have a bruising effect if the hostilities are prolonged.

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For South Africa, whose position in the global context is best described as that of a price taker, the impact cannot be ignored.

Substantial petrol and diesel price increases are expected to take effect at the start of April, after escalating oil prices resulted in a surge in fuel prices.

This is likely to push a currently a modest inflation rate higher down the line, resulting in a more hawkish approach from monetary policy authorities when setting interest rates.

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Government’s finances are also expected to come under pressure, prompting caution from fiscal authorities.

Speaking at a conference hosted by Stanlib Asset Management in Johannesburg on Wednesday, National Treasury Director-General Duncan Pieterse moved to assure corporate leaders that the war has not quashed what was largely described as a ‘fiscally’ sound budget, delivered last month by Finance Minister Enoch Godongwana.

While the situation is fluid, Pieterse says the country does have some fiscal buffers to absorb the shock.

“As expected, when oil prices start behaving the way that they are behaving now, what we typically see is that gold prices will go up, which benefits our mining industry and our gold exports.

“This is a big positive for our economy. You see same the same thing on the iron ore side.”

Although there is a silver lining, Pieterse says it remains to be seen whether export earnings will be enough to offset the higher cost of import commodities like oil from a terms-of-trade perspective.

“Already prior to the shock, there was an anticipation that throughout the course of this year, we should be seeing additional commodity price revenue come in.

“And so, from our perspective, as long as expenditure remains well anchored and revenue either performs as its performing currently or there is a slight over performance, then from a fiscal perspective, our fiscal path is secured.

“It would take a very big shock to global growth to dislodge us and that global shock may still come, we don’t know.”

He says the South African government will adopt a wait-and-see approach, as pressure mounts for a coordinated response to the conflict in the Middle East.

It appears unlikely that the Department of Mineral and Petroleum Resources and National Treasury will provide relief for consumers and affected industries before 1 April, when the increase in the general fuel levy takes effect and higher fuel prices are announced.