The rand strengthened slightly toward R18.14 against the dollar yesterday, after Finance Minister Enoch Godongwana delivered a market-friendly Budget on the back of deteriorating economic outlook.
Godongwana’s Budget Speech reiterated the government’s commitment to debt stabilisation, and a primary surplus.
He beat down on a well trodden path of fiscal consolidation, forecast lower budget deficits in the medium-term, despite the debt stabilising at higher levels and economic growth weakening amid the ongoing Eskom power crisis.
In this regard, he said the government planned to take on over half of Eskom’s debt over the next three years to help strengthen the power utility’s balance sheet and operations, and enable it to restructure.
Eskom welcomed the financial relief afforded by the government but indicated that it would study the details of the plan, before commenting.
Citadel Global director Bianca Botes said though the rand had reacted positively to Godongwana’s speech, it still remained volatile and could weaken further if South Africa is greylisted later this week.
“The rand initially responded well, gaining ground from an intra-day high of R18.38 to R18.14,” Botes said.
“However, Minister Godongwana’s closing remarks seemed to be priming the market for a greylisting, and saw the rand give up most of the regained ground to trade at R18.25/$ shortly following his Budget Speech.”
In the meantime, Godongwana announced a total of R13 billion in tax incentives to businesses and individuals to encourage investment in renewable energy projects, and offset the impact of elevated fuel and food prices.
Standard Bank’s head of macroeconomics and currency research Dr Elna Moolman said that the Budget should be neutral for the rand and equity markets.
“Investors will draw some comfort from the continuity of the general fiscal intent, and more clarity about the fiscal impact of support for Eskom,” Moolman said.