JOHANNESBURG – The rand fell sharply after South African Finance Minister Tito Mboweni forecast wider budget deficits and higher debt during his medium-term budget policy statement on Wednesday.
At 4pm, the domestic currency was at 14.99 to the dollar, 1.2 percent weaker than its previous close.
Mboweni projected a budget deficit equal to 5.9% of gross domestic product this fiscal year, higher than a February forecast of 4.5% of GDP.
He also said national debt was increasing at an unsustainable rate and that the government had identified spending cuts of 21 billion rand in 2020/21 and an additional 29 billion rand in 2021/2022 to help stabilize debt.
Africa’s most industrialised economy is battling to kick-start economic growth, and investor sentiment is fragile.
South African government bonds also fell after Mboweni started his budget speech, with the yield on the benchmark 2026 bond up 16 basis points to 8.36%.
Jameel Ahmad, FXTM Global Head, Currency Strategy & Market Research, said, "One of the most alarming takeaways from the mid-term budget policy statement announcement is that GDP growth for South Africa in 2019 has been revised lower to 0.5% in comparison to the 1.5% expected back in February, which hasn’t helped investor sentiment because it has painted the same old picture that the South African economy will continue to underwhelm – a theme for South Africa that has so regularly been expressed throughout the past decade."
"Some patience does need to be displayed here however, because it is the acceleration in weakness seen throughout the global economy that has encouraged this drastic revision to South African GDP expectations and not the case of something that has been domestically-induced. Think at it from this perspective both the United States and China have been at each other’s throats when it comes to trade war tensions since mid-2018, and this feud doesn’t convincingly appear that it will be coming to a conclusion anytime soon," Ahmad said.