JOHANNESBURG - The rand was yesterday left reeling-shedding 2% against the US dollar amidst rumours that President Jacob Zuma will push through plans for free university education, against the advice of the commission of inquiry into the feasibility of free education he had set up last year.
The resignation of Treasury’s head of the Budget Office also caused unease in the markets, with the Presidential Fiscal Committee seemingly assuming more budgetary powers.
The local currency which was bid at R14.36 at the opening of the markets yesterday weakened to R14.52 by 5pm.
The rand also weakened significantly against the euro, weakening from R16.71 to R16.93- 2.1 percent.
The local unit also weakened 1.5 percent against the British pound from R18.75 to R18.97.
The weakness in the local currency was also underpinned by dollar strength on the day, which found support from hopes that US President Donald Trump's tax reform plan would muster enough supports amongst US legislators.
Allet Opperman, an analyst at TreasutyOne, said free education rumors would place enormous pressure on an already overstretched economy and cannot be good for the economy.
“The basis for the free education market reaction was due to the reality that there are no funds available to justify the free education notion and should this be announced what sector would be the unlucky loser to lose their funding to facilitate the education spending,” Opperman said.
The Presidency yesterday relented and published the Fees Commission Report amidst legal moves by some political parties to activate the Promotion of Access to Information Act tenets.
The report did not endorse fully fee-free education for all. Instead, itrecommended that a new cost-sharing model be introduced between the public and private sectors, which would take the form of an income contingent loan (ICL) made available by the private sector for the full cost of study.
Tiffany Pollock, a forex and money market trader at Merchant West, said besides free education reports, what added to the rand’s weakness was the central bank’s Financial Stability report that said that state-owned enterprises would not be viable entities without government support
”Zuma has tasked a joint team from National Treasury and the Office of the President to find a further R40bn in the budget. The chances of finding this is low in an already cash-strapped environment, without some ministry expenses being curtailed.”
“This is causing distress within National Treasury given some recent high profile resignations,” Pollock said.
Treasury yesterday confirmed the resignation of its the resignation of its Deputy Director-General: Budget Office, Michael Sachs.
Media reports had indicated that Sachs had left his role over Zuma’s alleged decision to make university freely available to families earning under R350 000 per annum. However, Treasury moved quickly to dispel those allegations and said it remained committed to a budget that focuses on fiscal consolidation.
“Both the Director-General and I are aware of protecting the integrity and transparency of the Budget system and process, and ensure that all tax and expenditure decision processes continue to be run by the Treasury and Minister of Finance, and continues with the consultative process introduced by the first democratic government,” Finance Minister Malusi Gigaba said.
Tumisho Grater, an economic strategist at Novare Actuaries and Consultants, said the local currency had been feeling the weight of policy and political developments.
“Growing speculation that President Zuma will soon announce free higher education has left markets anxious as the move would put added strain on the country's already stretched public finance.
"This is, of course, in addition to the tension surrounding the upcoming round of credit rating reviews,” Grater said.
- BUSINESS REPORT