Mboweni’s budget fails to give rand momentum
FINANCE Minister Tito Mboweni’s Medium-Term Budget Policy Statement (MTBPS) failed to inject momentum into the rand following its best rally in weeks.
The rand yesterday weakened 0.18 percent to R16.42 against the dollar during intraday trade, having fallen to R16.47 to the greenback overnight, its worst level in a week.
Investors were of the view that the MTBPS was short on details about the economic recovery plan.
Mboweni pledged to freeze the public wage bill for three years to avert a looming debt crisis. But the allocation of R10.5 billion to South African Airways raised doubts about the government’s fiscal consolidation. The bailout will largely be funded by cuts to basic services.
The struggling Land Bank received a further R7bn bailout following the recent R3bn cash injection.
Mboweni said the debt-to-gross domestic product ratio was expected to reach 95.3 percent in the 2025/26 fiscal year.
TreasuryONE’s Andre Botha said Mboweni’s Budget delivered no real shocks. The rand reacted more to the strong dollar, weakening to slightly below R16.50 before recovering to close at 16.3819.
“All emerging-currency currencies traded on the back foot yesterday as fresh lockdowns in Europe raised fears around the economic recovery.”
France and Germany have announced stricter lockdown restrictions as a massive second wave of Covid-19 cases threatened to overwhelm Europe.
Europe’s Covid-19 second wave has threatened hopes of a global economic recovery as more lockdown restrictions will hamper business activity.
South Africa desperately needs a business activity stimulus to get back to a growth path and attract investment as the economy is projected to contract by 7.8 percent this year.
Data from the South African Reserve Bank yesterday showed that private sector credit slowed to 3.12 percent year-on-year in September, following growth of 3.87 percent in the previous month. This was the weakest rise in private credit since August 2010, amid the downturn caused by the Covid-19 crisis.
Foreign investors have grown increasingly worried over South Africa’s long-term solvency. They have remained substantial net sellers of the government debt in the second half of this year, disinvesting to the further value of R18.1bn in July and R18.8bn in August.
Anchor Capital’s Nolan Wapenaar said local bonds were about 10 to 15 basis points weaker following Mboweni’s speech.
“However, we highlight that global sentiment towards emerging markets was negative on Wednesday, so it is difficult to say how much of this weakness is due to the Budget and how much is due to the global environment,” Wapenaar said. “We would venture to guess that it is probably a bit of both.”