South Africa will evaluate the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) held at the central bank annually and withdraw from it when funds are available, Finance Minister Enoch Godongwana told Reuters on Thursday.

Godongwana said in his annual budget speech on Wednesday that the government was changing the framework governing the GFECRA account to allow it to draw down 150 billion rand ($8 billion) over the next three years to limit its borrowing.

South Africa is struggling with an ailing economy and high debt ahead of a general election on May 29 that could see the governing African National Congress party lose its parliamentary majority for the first time since the end of apartheid 30 years ago.

Godongwana told Reuters that using the funds to reduce the country's debt liability was more effective than allocating them to spending.

"We are facing a major challenge of debt which is crowding out all other spending," said Godongwana.

The GFECRA account captures gains and losses on the country's foreign currency reserve transactions and has a balance of more than 500 billion rand, larger than plausible reserve losses from rand appreciation, the National Treasury said.

The treasury said the GFECRA drawdown would result in a saving of about 30 billion rand in debt-servicing costs over the next three years and help reduce the debt-to-GDP ratio, now projected to peak at 75.3% of GDP in 2025/26 from an estimate of 77.7% seen in November.

Some analysts had proposed that the money be used to pay down the debts of struggling state-owned companies such as Transnet, the ports and logistics firm.

But Godongwana said giving money to Transnet would "just be putting money in a hole." Instead, he said, the firm should implement its turnaround strategy and use its balance sheet to resolve the challenges it faces.

Part of that strategy involves privatising parts of the business that Transnet can no longer maintain, a contentious issue for labour unions, particularly so in an election year.

Analysts said the government having more frequent access to the GFECRA proceeds also raises concerns of the money being used to clear up fiscal mismanagement.

Godongwana said the framework developed would protect against this but he added that if not closely guarded, there was a risk that future administrations could undo those safeguards. ($1 = 18.8901 rand) (Reporting by Kopano Gumbi; Writing by Nellie Peyton; Editing by Alexander Winning, Olivia Kumwenda-Mtambo and Hugh Lawson)