Rand weaker after gloomy budget
The dire numbers were largely expected by markets, and in some aspects were more optimistic than other forecasters.
JOHANNESBURG - The rand edged lower in early trade on Thursday, pressured by a budget speech that forecast ballooning debt and a higher government deficit, as well as fading hopes globally of a quick economic recovery.
At 0640 GMT, the rand was 0.32 weaker at R17.4425 per dollar, not far off its overnight close following largely uneventful trade in the wake of Wednesday’s emergency budget which failed to push the currency beyond its R17.50 resistance.
Finance Minister Tito Mboweni said the budget deficit would widen to record 14.6% of gross domestic product in 2020/21, while public debt would top 80% as the country borrowed more to plug revenue holes caused by the COVID-19 pandemic.
The dire numbers were largely expected by markets, and in some aspects were more optimistic than other forecasters. The Treasury said it saw 2020 growth contracting 7.2%, but the International Monetary Fund (IMF) predicted on the same day that Africa’s most advanced economy would shrink by 8%.
The lack of detail about how the government planned to revive growth and stabilise debt fed some negativity among investors, adding to the global mood to cut back on riskier bets.
On Wednesday, the IMF slashed its 2020 global output forecast to a 4.9% contraction from minus 3%, saying it saw deeper and wider damage from the pandemic than first thought.
South Africa’s bonds reversed a rally in the previous session, with the yield on the 2030 government issue up 4 basis point to 9.24%.