Cape Town - South African Finance Minister Pravin Gordhan said he was surprised by the sharp fall in the rand and government bonds after he presented his budget in Parliament, adding that he had done “more than enough” to avert ratings downgrades.
The rand fell more than 3 percent against the dollar while government bond yields soared as much as 21.5 basis after Gordhan forecast the economy would grow at the lowest pace since a 2009 recession.
Markets appeared unappeased by Gordhan's pledge to rein in spending and cut the budget deficit to 3.2 percent of GDP in 2016/17 from 3.9 percent in the previous fiscal year.
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“I am very surprised that is the reaction but let them understand the numbers and the kinds of commitments we have made and how fundamentally we are tackling some of the issues that have been perhaps not done adequately before,” Gordhan told Reuters after presenting the budget to parliament.
“I think we have done more than enough to demonstrate that we are doing things differently.”
In a separate interview, Treasury Director-General Lungisa Fuzile said he was confident the budget had created a favourable basis for an international bond, but added the government had adequate reserves to defer the launch if need be.
“We think that we have done enough to necessarily trigger a positive reaction, and if that reaction translates into an opportunity to be able to place a bond at yields that would deliver a coupon we can live with over 10 years, then we'll take it,” Fuzile said.
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The Treasury said it planned to borrow $4.5 billion from global markets over the next three years, with $1 billion worth of paper planned for the current fiscal year ending March if conditions allowed.
“If we were to enter the market now, we would certainly be able to place a bond,” Fuzile said.
“But given the cushion that we have built ourselves, it wouldn't make sense hastily to go into the market and get a less desirable coupon payment when a delay of a little while ... can see us through that.”
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REUTERS
For more post-budget commentary, pick up a copy of Business Report tomorrow.