Eskom woes hit the rand, raise prospects for higher inflation
THE TURMOIL around Eskom has led to serious negative effects on the rand and boosted prospects that the inflation rate is likely to rise quicker than anticipated.
This would leave the economy depressed further, given the expected increases in import prices like fuel and food and the expected hike in electricity tariff.
Employment prospects for 2019 will continue to be depressed.
Against this background, Finance Minister Tito Mboweni will deliver his first Budget speech in Parliament on Wednesday.
Not only will it be one of the most difficult Budget speeches since the democratic dispensation, but the rating agencies and foreign investors will listen with great interest and anticipation.
Mboweni’s biggest challenge will be to keep the deficit at levels less than 4.3 percent and to bring down the debt-to-GDP ratio to less than 60 percent.
Given that Mboweni has very little room to manoeuvre, it is highly likely that he will have to raise taxes to finance state-owned enterprises to address their debt levels.
It seems that income tax increases with new and higher brackets are on the cards. He will also have no choice but to hike fuel levies and other indirect taxes.
Mboweni will also have no room to implement measures to support higher economic growth and job creation. The biggest focus, however, will be his decision on government salaries and/or the bid to prune the size of the government.
The weaker rand, however, contributed to a strong rally on the JSE last week, despite uncertain movements in share prices in global markets.
The uncertainty among investors over the US-China trade war, prospects for weaker European growth and a hard Brexit landing seems not to have harmed domestic stock prices.
The all share index gained 1 384 points, or 2.6 percent, last week and closed on its highest level this year on 54 628.41 points.
The industrial 25 index gained a healthy 3.3 percent while the resources were the winners of the week, rising 6.3 percent.
Financial shares were sold off, given the weaker rand, and the financial 15 index lost 103 points.
Listed property was hit the hardest and tumbled more than 4 percent.
At the close of trade on Friday the rand had depreciated by 53 cents, or 3.9 percent, against the dollar to trade at levels around R14.14, and was 51c lower against the euro.
The local currency retreated 58c, or 3.3 percent, to R17.60 against the pound.
This, at a time when crude oil has increased on average, means that the price of petrol is under-recovered by 43c a litre and diesel by 59c a litre.
If the rand continuous to weaken, consumers may expect a big increase in fuel prices in March.