Budget 2021

Devastation for SA economy, but 'much ado about nothing' for the rand

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It was "much ado about nothing" for the rand despite devastating news for the SA economy in Finance Minister Tito Mboweni's supplementary budget speech delivered on Wednesday afternoon. 

This was because much of the bad news was already priced in, said Andre Botha, senior currency dealer at TreasuryONE. 

"It was a case of much ado about nothing, as the supplementary budget from Finance Minister Mboweni hardly made any difference to the rand today. The rand touched the R17.40 level during the speech but has settled around the R17.30 level after the speech.

"We feel that much of the bad news of the speech was priced in already and that South Africa is not the only country in a bit of strife following the Covid lockdowns."

Mboweni noted that the SA economy was likely to contract by 7.2% in 2020, against 0.9% growth projected in the February budget - the largest contraction in 90 years. 

Moreover, the budget deficit is projected to increase to 15.7% of GDP, up from 6.5% projected in February. 

Gross national debt, meanwhile, will be close to R4 trillion, or 81.8% of GDP by the end of the fiscal year, with debt servicing costs coming in at 21 cents for every rand paid in taxes. 

Mboweni described the situation as an impending debt crisis, noting that SA would need to get $7 billion from the offshore market. 

But, noted Botha, it was nonetheless a "relatively quiet" day for the rand. 

"Putting the speech aside and looking at the market we see that it was a relatively quiet day with the US dollar slightly firmer against the Euro today. There were no other significant moves in the currency market today to mention," said Botha. 

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