Photo: File
Photo: File

Rand slides as MTBPS fails to excite

Time of article published Oct 29, 2020

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Compiled by Dhivana Rajgopaul

JOHANNESBURG - The South African currency traded on the back foot as the US dollar advanced on safe-haven appeal, while all eyes were fixed upon the finance minister for guidance on the fiscal path ahead according to NKC Research.

Among the measures lined out by finance minister Tito Mboweni at the ‘mini budget’ on Wednesday, South Africa aims to rein in the fiscal deficit via the public sector compensation channel.

It was emphasised that the largest share of spending reductions will fall on public sector compensation, but as was expected, there was little new news on this front. The courts look set to decide what happens to compensation this year, while the figures for coming years are not yet finalised.

At the close of local trade, the rand quoted 1.19 percent weaker at R16.38/$, after trading in range of R16.17/$ - R16.49/$. The rand traded flat overnight. Expected range today R16.20/$ - R16.50/$.

MTBPS contains mostly no news, some bad news

Finance Minister Tito Mboweni delivered the Medium-Term Budget Policy Statement (MTBPS) on Wednesday, October 28. Mboweni was tasked with navigating the country away from a sovereign debt crisis while at the same time funding an unprecedented economic recovery plan.

The finance minister stated very early on that the budget is putting forward an active plan to avoid a sovereign debt crisis (a reference to the active scenario put forward in the emergency budget) through a five-year consolidation plan (perhaps attempting to appease cries that consolidation efforts are too aggressive).

On the economic outlook, the Treasury now expects GDP to drop by 7.8 percent this year compared with a June forecast of a 7.2 percent contraction. Economic growth is forecast to reach 3.3 percent in 2021 before easing to 1.7 percent in 2022.

Output is anticipated to return to pre-pandemic levels in 2024. Price inflation is expected to increase from an average of 3.2 percent in 2020 to 4.1 percent in 2021.

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