The rand lost 1.5% against the USD early in the MTBPS as the Finance Minister compared South Africa to a winter season, where the ground is dry.
He emphasised that debt is accelerating at an unsustainable pace and the economic landscape is dismal. He stressed that a weak global environment is adding to pressure on the local economy and that drastic action is needed to ensure that SA creates a sustainable economic environment.
Domestic policy missteps were highlighted as one of the key issues for emerging market turmoil, touching on Mexico and Brazil.
Expected GDP growth is now set at 0.5% for 2019, adjusted downwards from the 1.5% anticipated in February. This highlights the unfavourable situation in which we find ourselves and undermines the vision of the founders of our democratic society.
The gross debt-to-GDP ratio is on the rise and is expected to reach a record 71.3% in 2022/23, and radical intervention is required. Debt-service costs and wages make up the biggest portion of the budget and remain the fastest growing expenses.
The fiscal position has worsened significantly since February, a fact that Moody’s will frown upon. However, cashflow support to SOEs will be in the form of loans, no longer equity, which should offer some offset for the rating agencies. It also means that the SOEs need to learn to fend for themselves.
The ZAR weakened further as the speech wore on, trading 1.93% softer at R14.90/$.
Urgent and drastic reforms are required, which will be announced in the 2020 budget.