Naked Rand Commitments Gobble up R350 Million off Fiscus

Maladroit financial management by the department of international relations and cooperation has cost national treasury R350 million, finance minister Nhlanhla Nene announced in his medium term budget policy statement on the 22^nd of October 2014. Surely the volatility of emerging market currencies is common knowledge and leaving a naked exposure to foreign currency denominated commitments against the Rand is ludicrous. Vote 05 is an outlier of poor currencies management that destroys value at a time when fiscus space is limited draws attention for displacing critical service delivery allocations towards vulnerable members of our society.

The global call, South Africa included, is for austerity and efficiency in the utilization of national resources. Doing more with less is a rare quality in public management and requires a 360 degree performance management approach. The finance minister has repeatedly announced in various fora of the impetus for prudent and efficient management of resources. Against such a clarion educated call one would expect surplus, or balanced budgets or in the worst case scenario leaner budget overruns with qualified and responsible justifications.

Classifying the international relations and cooperation budget overrun as unforeseeable and unavoidable expenditure is in itself deceitful. If anything was done, it seeks to justify that this is the best position they could achieve in managing the exposure to the depreciating Rand. If they took a natural hedge by doing nothing, it is a desperate cover up for gross incompetency in public resources management. In summary it is a shear attempt to run away from taking responsibility. Needless to say in both scenarios allowing R350 million to burning through your hands is an oversight of unbalanced magnitude.

In building a culture of efficiency and surpassing performance expectations, government ministries need to inculcate a philosophy of strategic cost management rather than reactionary application of cost cutting measures as evidenced by the proposed cuts by the finance minister. With forethought strategic cost management, the R350 million budget overrun resulting from the depreciation of the Rand could have been reduced or possibly eliminated.

The budget overrun is constituted of commitments in accommodation leases, foreign allowances, foreign municipality costs, educational allowances, special travel allowances and membership fees to international organizations. By and large these commitments are known in advance and fixed. They however fluctuate since they are pegged in foreign currency but can be managed. A depreciation in the Rand leads to an increase in the foreign currencies denominated commitments in Rand terms.

This undesirable position can be substantially reduced or eliminated by taking a foreign currency hedge which the national treasury or line ministry can manage. Alternatively the commitment can be tendered to a private bank or insurance company in order to shift the risk management to professionals.

In that way we can manage our international relations and cooperation foreign commitments with certainty and efficiency.