• Dynamic rand weighing on USD/ZAR and GBP/ZAR
  • Support for the budget and the recovery of global risk appetite
  • Growth prospects have improved, multiple risks remain

Above: Archive image by Enoch Godongwana, copyright Pound Sterling Live, Still Source: SABC News.

The rand remained buoyant against the pound, dollar and other currencies after following the National Treasury’s upbeat fiscal forecast for 2022, leading analysts to look to international markets where trading conditions remained favorable to South African unity.

The South African rand kept pressure on the dollar and pound on Wednesday, but paid little heed to Finance Minister Enoch Godongwana’s inaugural budget speech, which included projections suggesting the Treasury could achieve a primary budget surplus sooner than expected.

“Overall, Finance Minister Enoch Godongwana released a neutral to slightly positive budget and the rand should remain supported. However, the government remains obsessed with creating jobs itself instead of allowing the private sector to be the main job creator,” says Matthew Axelrod, forex manager at DG Capital Forex.

“The rand has taken this budget at its own pace, trading relatively flat around 15.05 rand/$. The local unit is now focusing on international geopolitical developments,” Axelrod said after the finance minister’s speech.


GBP to ZAR Hourly

Above: GBP/ZAR displayed in hourly intervals alongside USD/ZAR.


Minister Godongwana said a primary fiscal surplus could be achieved by 2024, a year earlier than forecast in February 2021 and partly due to expectations of stronger growth in tax revenues linked to higher 18 months of commodity prices.

But he encouraged South Africans to be cautious about the outlook for public finances due to the likely temporary nature of the improved incomes and given the country’s still high spending commitments.

“A swallow does not make a summer. Improved revenue performance does not reflect an improvement in the capacity of our economy. As such, we cannot plan permanent spending based on short-term increases in commodity prices,” Finance Minister Godongwana warned.

This is one of the potential reasons for the Rand’s limited reaction on Wednesday.


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Rising tax revenues are expected to reduce the national borrowing requirement by R135.8 billion this year and by a total of R131.5 billion over the next two years, while the national debt ratio is expected to stabilize around 75.1% by 2025, or three percent. points less than in the last budget.

This primary surplus and the previous primary surplus are positive developments for the country and the currency, but rising debt service costs and multiple risks to the economic outlook will likely leave the Treasury with little room for further increases. expenses in the coming period.

“The government will need to ensure that growth in non-interest spending is contained within MTEF targets, as higher interest rates and a weaker currency could worsen debt service payments and lead to a deficit. bigger budget,” says Isaac Matshego, an economist at Nedbank.

The forecast for economic growth in 2022 was raised from 1.8% to 2.1%, but the projections remained unchanged at 1.6% and 1.7% for 2023 and 2024, implying a slowdown in the economy from this year.


GBP to ZAR daily

Above: GBP/ZAR displayed at daily intervals alongside USD/ZAR and selected moving averages.


“The future of our public enterprises is under review by the Presidential Council of Public Enterprises. Their future will be informed by the value they create and whether they can be run as sustainable entities without bailouts,” Godongwana also told parliament.

The anticipated economic slowdown is one of the main risks to Wednesday’s upbeat forecast, although the public sector wage bill and the financial needs of struggling state-owned companies like energy supplier Eskom were also cited by Godongwana as concerns. reasons of prudence on public finances.

South Africa’s unionized public sector workforce has long been a source of cost pressures for the Treasury, while struggling energy giant Eskom and state-owned airline South African Airways have posed risks important financials.

This is mainly due to their poor health and government guarantees of large piles of debt, although there are also other ways in which parastatals have or are able to dampen the economy.

“At the national level, the mining sector must overcome its electricity supply and logistics challenges to function optimally. According to the Minerals Council SA, the tariff hikes demanded by Eskom will be detrimental to the economy and in particular to the energy-intensive mining sector,” says Investec economist Lara Hodes, writing in a February review of production figures for the all-important sector. mining. sector.