South Africa’s Rand encountered a reeling hit after the emergency budget was read on Wednesday, 24th of June, 2020. In what is christened as a severe shocker, the Rand dropped from 17.41 per dollar to 17.30 per dollar.
Wednesday budget tabled by the Finance Minister Tito Mboweni painted the
picture of a limping country. His speech was marred with emaciations
anticipating a slippery and bumpy economic road 59 years after Independence.
Mr. Mboweni was on record that the public debt is set to balloon and burgeon to
80% at the same time budget deficit would widen to 14.6% of Gross Domestic
Product in 2020/2021.
country has also witnessed fading hopes of quick economic recovery following
the ravages cost by corona novel 19. Some analysts have decried the
governments’ inability to layout plans which are crucial for revamping the
economy. The economy was already in recession, since the last quarter
of 2019. This had the net effect on the Rand, which has been on the
resistance at 17.50 per dollar for quite sometimes.
The President’s stimulus package had no net effect on the economic stagnation, and the government remains disturbed by the market behaviour. President Cyril Ramaphosa bolstered the economy by wiring ZAR 500 Bn (USD 29 Bn) to cushion various sectors. With the massive economic contraction of at least 6.5%, this could not hive the country out of the crisis. Every day is turning to be a nightmare for Africa’s once-was economic hub.
Bank analysts have also given the strongest indication of a dim future by
warning that the market might be further devastated if no remedial actions are
implemented. “While the market has certainly gotten used to disappointing
budget updates, we think, the extent of deterioration in fiscal ratios will
harm South Africa.” a Deutsche Bank analyst wrote in a note. Already, the
tax revenues have collapsed, and foreign tourism is non-existent, making it
quite challenging for the government to pool more funds.
economic limbo is compounded by the prediction of the International Monetary
Fund(IMF) that Africa’s most advanced economy would shrink by 8%. Going by the
figures of the GDP, which is currently at 15.7%, it is projected that it will
drop to 9.2% and 7.5% in 2021 and 2022, respectively. This will mark an
unprecedented scenario, and the country might be plunged into a deep economic
investors have also developed jittery owing to these unpredictable characteristics.
Though Europe has ushered in hopes of global economic recovery, the risk
sentiment in South Africa is not intertwined with these parameters.
data showed that several of the countries’ Eurobond sank to their lowest in a
week to 0.6%, and this has amounted to low investment. However, some of the
investors are looking to cash in on high yield on the Rand and local bonds with
a strong conviction of better outcomes.
To combat all these misgivings and misfortunes, coupled with Covid-19, which has led to more than 100,000 infections and over 2000 deaths, the treasury needs to implement spending reductions amounting to ZAR 230 Bn in 2021/22 and 2022/23 followed by a further reduction in 2023/24 to stabilize the debt at 87.4% of the country’s GDP. This will also help in sustaining the yield on the government 2030 issue, which fell 17 basis points to 9.165%.
Photo by Sincerely Media on Unsplash
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