South African Rand Keeps Falling Against Dollar as rating downgrade.
The South African rand dollar value have fallen to over R14 to the dollar due to the budget speech given by finance minister Malusi Gigaba on Wednesday.
Gigiba’s maiden speech made a very negative impact to the market, leading to the lowest devaluation the rand had seen since 2017 shortly after it concluded. The Rand hit value of R14 to the dollar mark before the end of wednesday business day. .
The rand dropped even further on Thursday, trading at R14.12 to the US dollar by 08h00, the lowest point since mid-December 2016.
The sell-off came as a result of the bad news from Gigaba’s speech and report, which openly showed a country running out of money, with only few options left to open to it to maybe reverse the trend.
Among many other problem areas, Gigaba said the budget deficit was likely to reach 4.3% of gross domestic product in the 2017/18 fiscal year, the highest since 2009, and way off the government target of 3.1%
Tax revenues wasn’t spared too as it also faced a major shortfall of over R50 billion in 2017, with the number expected to total R209 billion by 2019. Gigaba also showed concern over a possible tax uproar among South African businesses and citizens.
Also marked as a massive problem area were state-owned companies, who are currently in need of bailouts in the middle of poor governance and decreasing demand for their services.
“Markets have taken the budget speech badly, there are a lot of negatives in there,” TreasuryOne currency dealer Wichard Cilliers told Reuters.
“They don’t like that debt to GDP is going to rise to 60% over next three years, the comments on the SAA bailout and the Eskom assistance. The R50.8 billion revenue shortfall will probably have to be financed by higher taxes next year.”
Also downgrade warnings were also triggered among analysts as a result of the budget speech, Blaming Gigaba’s “worst case scenario” presentation for not sugarcoating the challenges faced by South Africa.
“If the ratings companies don’t do anything after today they are frozen behind the wheel,” George Herman, chief investment officer at Citadel Investment Services told Bloomberg. “The ratings downgrade is now all but guaranteed, it’s just a matter of them saving face and deciding when to do it.”