JOHANNESBURG – The rand on Monday strengthened more than 1 percent on the weakening dollar as the domestic focus shifted to the Medium-term Budget Policy Statement (MTBPS) tomorrow.
The rand had powered to R14.28 against the greenback at 5.30pm from the R14.41 bid at on Friday. It also strengthened to R16.40 against the euro from R16.61 on Friday and R18.53 against the pound from R18.85.
TreasuryONE senior currency dealer Andre Botha said the rand gained momentum as commodity prices regained some impetus and the continued slide of the dollar.
“The rand will take its cue from the dollar as the data cupboard is fairly empty, but we expected range-bound trading for the rand as traders are looking to the Medium-Term Budget Policy Speech as the main catalyst for the week,” Botha said.
The MTBPS, the first to be delivered by Finance Minister Tito Mboweni, will provide an update on the outlook for public finances through the 2021/22 fiscal year.
The highly anticipated MTBPS or mini-budget comes at a time when the economy is in a technical recession, with the government agreeing to R30 billion more for public servants wage bill and starting at R4bn to R6bn less than the projected VAT income due to the recommended extension of the list of zero-rated VAT goods.
Bureau of Economic Research (BER) said in a research note that other fiscal risks included the potential for more bailouts of highly-indebted state-owned enterprises and revised estimates on the cost implication of free tertiary education.
“In all, we have pencilled in consolidated budget deficits of 3.8, 3.9 and 3.7 percent of gross domestic product (GDP) for 2018/19 to 2020/21,” BER said.
In February, the National Treasury projected deficits of 3.6, 3.6 and 3.5 percent of GDP.
Mboweni has already flagged a swollen public sector wage bill and said it needed a deeper look, suggesting that was likely to be the first key area of possible reform.
Fitch Solutions, a subsidiary of the Fitch Group, however, said South Africa’s policymakers have little room to manoeuvre, due to the country’s already weak fiscal position.
“With limited scope to apply further monetary stimulus, South Africa is likely to resort to fiscal policy to help offset slowing growth. In this vein South Africa is applying a similar approach to other emerging markets facing growth/inflation trade-offs,” the firm said in its economic outlook note.
But the Mercer Global Pension Index released yesterday showed that South Africa’s rating had improved.
However, the research found that the country’s pension system still had major risks and shortcomings.
It said if these shortcomings were not addressed, its efficacy and long-term sustainability would be put into question.
The study further recommended that South Africa increase its overall score in the index by, among other steps, introducing a minimum level of mandatory contributions into a retirement savings fund or increasing the level of preservation of benefits when members withdraw from occupational funds.