- The rand rose to R18.77 to the dollar after Finance Minister Enoch Godongwana announced the use of the Gold and Foreign Exchange Emergency Reserve Account (GFECRA) to reduce government debt over the next three financial years.
- The minister also announced that there would be no major new taxes on already struggling consumers, which analysts said was a positive move by the market given the volatile domestic economic outlook. He says that he is capturing it.
- The fiscal deficit is expected to be 4.5% of GDP in 2024/25 and ease to 3.3% by 2026/27.
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The rand, which until yesterday was trading below R19/$, rebounded on news that Finance Minister Enoch Godongwana plans to reduce the government's debt burden, the worst since 1947.
The currency fell to 18.77 to the dollar after Mr Godongwana announced the use of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), which stores the accounting profits of South Africa's foreign exchange reserves, to reduce government debt over the next three years. It rose to the rand. fiscal year. The rand subsequently pared its gains and was trading at around R18.82 as of 15:33 local time.
The government plans to allocate R150 billion from GFECRA in the future, but as the value of foreign currency held by the government has increased due to the depreciation of the rand, GFECRA has ballooned from R1.8 billion in 2006 to more than R507 billion, reducing the debt burden. It will be reduced. South Africa's current gross debt-to-GDP ratio (about 74%) is the highest since 1947, with one in every five rands earned from taxes being spent on debt servicing.
Sean Murison, senior market analyst at global trading platform IG, said: “The strong rand in the budget speech highlights some acceptance of the fiscal responsibility and environmental management proposals for 2024/25. “
Murison added that the market was probably relieved that Godongwana would not impose another significant tax increase on South African consumers, given the already weak domestic economic climate.
Godongwana's use of GFECRA means the government will receive a R100 billion distribution in 2024/25. R25 billion in 2025/26. This will amount to R25 billion in 2026/27 and help reduce reliance on the domestic bond market to fund spending. Total government loan debt is also expected to stabilize at around 75% of GDP next year.
EY Africa Chief Economist Angelica Goligher said: “The biggest highlight of this budget is the withdrawal of R150 billion from GFECRA to reduce South Africa’s debt servicing costs through borrowing reductions.” She said: “Reducing South Africa's debt and structurally shifting spending from consumption to investment will improve fiscal capacity to support economic growth.”
Mr Golliger said Godongwana's budget had succeeded in remaining fiscally responsible, while at the same time being “kind” to South Africans facing tough economic times, given that no major tax increases had been announced. It added.
Treasury expects the consolidated budget deficit to be 4.9% of GDP in the 2023/24 financial year, unchanged from the forecast outlined in the 2023 Medium-Term Budget Policy Statement (MTBPS). The fiscal deficit is also expected to narrow slightly to 4.5% of GDP in 2024/25, and further ease to 3.3% by 2026/27.
“The expected reduction in the consolidated fiscal deficit…further demonstrates a concerted effort towards fiscal health,” said Andrew Baalman, chief executive officer of corporate and advisory at Deal Leaders International. “This may be viewed favorably by investors as it reduces the risk of fiscal imbalances that could lead to macroeconomic instability.”
Treasury said it expects South Africa's economy to expand by 0.6% in 2023, with forecasts for 2024 revised upwards from 1.0% to 1.6% MTBPS. The Treasury expects this improved outlook to be due to higher consumer spending as inflation eases and increased investment in energy infrastructure.
“Treasury's view is relatively optimistic compared to other forecasters, such as the SARB, which predicts growth of 1.2% in 2024,” Golliger said. “There are downside risks arising from geopolitical tensions, slowing global economic growth and challenges to South Africa's power and transport infrastructure,” he said.