JOHANNESBURG – The rand plunged 26 cents against the dollar yesterday as the National Treasury data showed South Africa recorded its worst Budget deficit in July in at least 14 years, as tax collection waned.
The local unit was bid at R14.68 against the greenback at 5pm, against the R14.14 it was bid at on Wednesday. Further compounding the local currency’s woes was the geopolitical events in Argentina and Turkey.
Andre Botha, a senior currency dealer at TreasuryONE, said overall the bias was for the rand to weaken.
“It appears that the Turkey sell-off is still in full swing and South Africa is bearing the brunt of being lumped into the same basket,” Botha said.
The National Treasury said that the country had recorded a Budget shortfall of R95.9 billion in the period. The Budget gap was largely due to poor tax collection on the back of weak economic growth.
International rating agency Moody’s Investor Services earlier this month said that the country’s fiscal consolidation would be slower than the government estimates, because of weak economic growth and a higher public-sector wage bill.
Moody’s also said that the country’s fiscal deficit would be about 4 percent of gross domestic product (GDP) in the year to March 2019.
This is in contrast with the Treasury, which forecasts a shortfall of 3.6 percent of GDP for the current fiscal year.
South Africa's economy shrunk to its worst in nine years in the first quarter, laying bare the mammoth task facing the Cyril Ramaphosa administration in reviving a moribund GDP. The economy contracted by 2.2 percent from the previous quarter, bringing real economic growth for the year to March 2018 to just 0.8 percent.
Meanwhile, Standard and Poor's said yesterday that it was unlikely that South Africa would follow its emerging market peer, Turkey, in being downgraded.
- BUSINESS REPORT