The rand breached the R19 threshold when compared to the US dollar on Tuesday, as the markets and economy anticipate the fiscal policies Finance Minister Enoch Godongwana will implement on Wednesday when he tables the 2024 Budget speech.
At 5.30am, the dollar was trading 0.1% higher against the rand at R18.97, while the euro was trading marginally lower at R20.43.
The British pound has marginally declined against the rand to trade at around R23.88.
The rand showed further sluggishness against the dollar and was trading at around R19,01 at 10am on Tuesday morning.
The yield on benchmark government bonds rose yesterday. The yield on the 2030 bond advanced to 10.14%, while that for the longer-dated 2040 issue rose to 12.42%, according to Anchor Capital.
BUDGET PREDICTIONS
According to Arthur Kamp, chief economist at Sanlam Investments, the finance minister is likely to show a main budget deficit for 2023/24 of around -5% of GDP, which compares unfavourably with the National Treasury’s initial projection of -3.9% of GDP published in February 2023.
“However, the Treasury is likely to continue mapping a path to lower budget deficits and stabilisation of the government’s gross loan debt ratio in around three to four years, although the debt trajectory may be lifted relative to the level of 77.7% of GDP in 2025/26 published in the November 2023 Medium Term Budget Policy Statement (MTBPS),” Kamp advised.
He noted that despite years of attempted fiscal consolidation, the debt ratio continues to trend higher, from a low of 26.0% of GDP in 2008/09 to 74.0% of GDP at end 3Q23.
Kamp argues that as a result, the government’s borrowing requirement (to fund the main budget deficit, redemptions and transfers to Eskom) is currently more than R550 billion per annum.
“In the absence of sufficient improvement in the primary budget balance (revenue less non-interest spending) to around 2.5 % of GDP, the debt ratio seems set to continue trending higher, in which case funding pressure can be expected to increase”.
NEW POPULIST POLICIES
Last week Casey Sprake, an investment analyst at Anchor Capital said that the minister is unlikely to introduce any new, significant populist policies or spending measures before the national election.
She predicted that Godongwana would earmark R252 billion for the 27 million social grant recipients and would advance the National Health Insurance (NHI) scheme.
Treasury will most likely maintain its commitment to fiscal consolidation, which entails taking a firm stance on further financial assistance to State-Owned Enterprises (SOEs), she said.
“Specifically, we do not foresee additional financial injections for entities like Transnet or Eskom in the upcoming budget,” Sprake said.
PricewaterhouseCoopers (PwC) this week warned that financially-constrained consumers had to brace for even higher cost of living, as Godongwana looked likely to opt to hike value-added tax (VAT) slightly.
PwC South Africa tax policy leader, Kyle Mandy said that to raise an additional R15 billion in tax revenues would require either increasing the corporate income tax (CIT) rate by 1.4% to 28.4%, increasing personal income tax (PIT) rates by 0.5% across all tax bands, or increasing the VAT rate by 0.5% to 15.5%.
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