Reserve Bank gets homework from international organisation by SETH THORNE

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2025-01-08 at 17:56 #459357
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Reserve Bank gets homework from international organisation

The South African Reserve Bank (SARB) has received high marks from the International Monetary Fund (IMF) for its commitment to transparency.

The IMF pinpointed areas where further enhancements would be beneficial, particularly pertaining to inflation target processes and clarity around the Gold and Foreign Exchange Contingency Reserve Account.

The IMF’s Central Bank Transparency Code (CBT) review, finalised in November 2024, evaluates the SARB’s transparency practices across a spectrum of domains, including governance, policies, operations, and official relations.

As central banks gain independence, transparency is key for accountability and effective monetary policy.

The review determined that the SARB “sets a high benchmark for transparency and is considered by external stakeholders to be one of the most reputable and effective public institutions in South Africa and globally”.

The report highlights the SARB’s strong transparency in several areas, such as:
- Providing detailed workforce data;
- Publishing a clear framework for Emergency Liquidity Assistance;
- Communicating monetary and macroprudential policies through various channels; and
- Offering accessible information on exchange controls.
With that said, the IMF still suggests areas for improved transparency concerning the process of setting the inflation target, the deliberations of the Monetary Policy Committee (MPC), and the use of alternative risk scenarios.

The IMF report coincides with South Africa’s review of its inflation target, with Governor Lesetja Kganyago advocating for a potential reduction to 3% to boost price stability and competitiveness.

The report recommends clarifying the roles of the SARB and the National Treasury in reviewing and setting the inflation target to address uncertainty among stakeholders.

It also suggests providing more information on dissenting votes in MPC deliberations to illustrate the uncertainty around decisions.

The IMF encourages the publication of alternative risk scenarios in the Monetary Policy Review to communicate the uncertainty around the central projection and the SARB’s reaction function.

Other recommendations

The report acknowledges the intricacies surrounding the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) and the imperative for enhanced transparency in this particular area.

The GFECRA functions as a mechanism for administering the SARB’s gains and losses stemming from valuations of gold and FX transactions.

The proposed allocation of unrealised gains from the GFECRA to the government has ignited considerable interest and discourse among stakeholders.

The report notes that a “complex aspect of this transfer is that gains in the GFECRA are both realized and unrealized, meaning that a methodology is needed to calculate the portion that can be deemed realised.”

“The proposed transaction was not well-understood by external stakeholders and thus raised some confusion about the SARB’s financial autonomy—and about the respective roles of the SARB and the NT,” it added.

The report recommends that the SARB:
- Develop a communication strategy for the GFECRA, explaining the account features, reform timelines, and market impact;
- Create a dedicated webpage with detailed GFECRA information;
- Hold seminars and workshops to engage stakeholders and clarify the GFECRA framework.
The SARB has already initiated measures to bolster transparency surrounding the GFECRA by publishing the GFECRA Defrayal Amendment Act in June 2024.

Additionally, the SARB has pledged to conduct an annual review of GFECRA buffers and will furnish regular updates.

The report also underscores the need for heightened transparency in the SARB’s Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) supervisory policies.

While acknowledging the SARB’s laudable efforts to strengthen its AML/CFT framework, the report suggests that it could proactively disclose more information about its supervisory policies, resources, and remedial actions undertaken by supervised institutions.

The SARB concurs with this recommendation, stating, “the strengthening of the AML/CFT framework is considered a necessary and crucial action.”

“We agree that such efforts would be instrumental in providing a greater level of transparency to assist South Africa in the FATF process”.

Going forward

Overall, the IMF’s CBT review acknowledges the SARB’s steadfast commitment to transparency, while also identifying areas for potential improvement.

The report’s recommendations aim to further solidify the SARB’s accountability and enhance public comprehension of its operations, policies, and governance structures.

The IMF said that by implementing these recommendations, the SARB can further elevate its standing as a transparent and highly effective central bank.

The SARB, in response, has expressed its appreciation for the report, stating that it “welcomes the publication of this final report… and the related recommendations.”

“While there may be areas where there is a divergence of views… we find the report constructive and generally positive in terms of the assessment of SARB transparency practices and areas for further improvement,” said the Reserve Bank.

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The South African Reserve Bank (SARB) has received high marks from the International Monetary Fund (IMF) for its commitment to transparency.

The IMF pinpointed areas where further enhancements would be beneficial, particularly pertaining to inflation target processes and clarity around the Gold and Foreign Exchange Contingency Reserve Account.

The IMF’s Central Bank Transparency Code (CBT) review, finalised in November 2024, evaluates the SARB’s transparency practices across a spectrum of domains, including governance, policies, operations, and official relations.

As central banks gain independence, transparency is key for accountability and effective monetary policy.

The review determined that the SARB “sets a high benchmark for transparency and is considered by external stakeholders to be one of the most reputable and effective public institutions in South Africa and globally”.

The report highlights the SARB’s strong transparency in several areas, such as:

Providing detailed workforce data;

Publishing a clear framework for Emergency Liquidity Assistance;

Communicating monetary and macroprudential policies through various channels; and

Offering accessible information on exchange controls.

With that said, the IMF still suggests areas for improved transparency concerning the process of setting the inflation target, the deliberations of the Monetary Policy Committee (MPC), and the use of alternative risk scenarios.

The IMF report coincides with South Africa’s review of its inflation target, with Governor Lesetja Kganyago advocating for a potential reduction to 3% to boost price stability and competitiveness.

The report recommends clarifying the roles of the SARB and the National Treasury in reviewing and setting the inflation target to address uncertainty among stakeholders.

It also suggests providing more information on dissenting votes in MPC deliberations to illustrate the uncertainty around decisions.

The IMF encourages the publication of alternative risk scenarios in the Monetary Policy Review to communicate the uncertainty around the central projection and the SARB’s reaction function.

Other recommendations

The report acknowledges the intricacies surrounding the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) and the imperative for enhanced transparency in this particular area.

The GFECRA functions as a mechanism for administering the SARB’s gains and losses stemming from valuations of gold and FX transactions.

The proposed allocation of unrealised gains from the GFECRA to the government has ignited considerable interest and discourse among stakeholders.

The report notes that a “complex aspect of this transfer is that gains in the GFECRA are both realized and unrealized, meaning that a methodology is needed to calculate the portion that can be deemed realised.”

“The proposed transaction was not well-understood by external stakeholders and thus raised some confusion about the SARB’s financial autonomy—and about the respective roles of the SARB and the NT,” it added.

The report recommends that the SARB:

Develop a communication strategy for the GFECRA, explaining the account features, reform timelines, and market impact;

Create a dedicated webpage with detailed GFECRA information;

Hold seminars and workshops to engage stakeholders and clarify the GFECRA framework.

The SARB has already initiated measures to bolster transparency surrounding the GFECRA by publishing the GFECRA Defrayal Amendment Act in June 2024.

Additionally, the SARB has pledged to conduct an annual review of GFECRA buffers and will furnish regular updates.

The report also underscores the need for heightened transparency in the SARB’s Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) supervisory policies.

While acknowledging the SARB’s laudable efforts to strengthen its AML/CFT framework, the report suggests that it could proactively disclose more information about its supervisory policies, resources, and remedial actions undertaken by supervised institutions.

The SARB concurs with this recommendation, stating, “the strengthening of the AML/CFT framework is considered a necessary and crucial action.”

“We agree that such efforts would be instrumental in providing a greater level of transparency to assist South Africa in the FATF process”.

Going forward

Overall, the IMF’s CBT review acknowledges the SARB’s steadfast commitment to transparency, while also identifying areas for potential improvement.

The report’s recommendations aim to further solidify the SARB’s accountability and enhance public comprehension of its operations, policies, and governance structures.

The IMF said that by implementing these recommendations, the SARB can further elevate its standing as a transparent and highly effective central bank.

The SARB, in response, has expressed its appreciation for the report, stating that it “welcomes the publication of this final report… and the related recommendations.”

“While there may be areas where there is a divergence of views… we find the report constructive and generally positive in terms of the assessment of SARB transparency practices and areas for further improvement,” said the Reserve Bank.