Nicola Mawson
The first Medium-Term Budget Policy Statement (MTBPS) since the Government of National Unity (GNU) failed to inspire confidence among investors, with the rand dropping as Finance Minister Enoch Godongwana tabled a speech that warned of slower economic growth, higher debt, and fewer revenue collections.
The rand weakened from about R17.59 to as high as R17.76 as the minister spoke, Chantal Marx, the head of investment research at FNB Wealth and Investments said in a note yesterday. The currency in late afternoon trade was at R17.67, while the JSE’s All Share Index ended the day at 86759 points, 0.62% down.
Marx added that the JSE didn’t react much, although there was “some downward pressure on the SA Inc segments of the market – largely explained by the rand and bond yield movements”. She added that, on balance, the MTBPS was more negative for bonds than for equities.
Godongwana, seen as a pair-of-safe hands when he kept his position in the finance chair, said that “there is a new light that is shining down on our country and on our economy”.
However, he also said that economic growth for 2024 would be lower than anticipated, at 1.1%, instead of February’s anticipated 1.3%.
The minister said tax collection for 2024/25 is expected to be R22.3 billion lower than what was estimated in February. In addition, for every R1 of revenue that government raises this year, 22 cents is paid in debt-service costs.
Marx said that the shortfall in revenue was not a surprise, nor was interest expenses being higher than anticipated and that the main budget deficit would be larger than what was projected in the February Budget.
Despite National Treasury’s “prudent approach, government’s commitment to macroeconomic stability and structural reform is expected to be positive for business and consumer confidence,” said Marx. This, she explained, could aid investment and consumption growth and will be positive from an equity markets perspective.
Marx added that a continued focus on infrastructure investment could have a positive impact on the construction value chain and the listed companies that play in this space.
Investec chief economist, Annabel Bishop, said MTBPS saw a deterioration in the fiscal metrics against expectations, which caused the rand to weaken, while “the deterioration in state finances projections extended to government’s debt-to-GDP ratio too”.
Nedbank’s economics unit noted that the 6% expected increase in spending, versus that of 4.4% in February, “reflects increased spending on infrastructure investment, a higher wage bill, and elevated debt service costs”.
That the minister acknowledged South Africa’s challenges, but missed the opportunity to ignite confidence was echoed by the performance in the rand, Jimmy Moyaha, the founder and managing director of Lebowa Capital told Business Report.
Nolan Wapenaar, the co-chief investment officer at Anchor Capital, said that the MTBPS is a story of a continued fiscal slippage, with spending pressures remaining. “The mini-budget was met with a little investor disappointment,” he told Business Report, adding that it was a reality check for the new administration as it showed there is still some way to go in getting finances to a sustainable position.
In terms of the currency, Wapenaar said it was difficult to say how much of the weakness was from the MTBPS or strong US job numbers, which resulted in some dollar strength. “In the longer run, we remain optimistic that the rand will recover the few cents of weakness today,” he added.
Wichard Cilliers, a director and head of Market Risk at TreasuryONE, noted that: “The rand reacted slightly negatively to the news, which was mostly not new, but just once again highlights the issues we, as a country, face.”
BUSINESS REPORT