South Africa’s rand strengthened after the Treasury vowed to return state finances to a sustainable path and hold off expanding welfare measures in one of the world’s most unequal societies.
Investing professionals cautiously welcomed the first budget presided over by Finance Minister Enoch Godongwana, though many noted that nothing significant has changed. There were more ambitious targets to rein in debt, plus pledges to reduce loan-serving costs, lower the budget deficit and cut spending.
The rand strengthened as much as 1.6% and traded 1.2% higher at 15.25 per dollar as of 5:13 p.m. in Johannesburg.
Here’s what investors and strategists were saying:
Sonja Saunderson, chief investment officer at Momentum Investments
“There is really not much different from what we have heard previously, though on a positive note treasury is still holding the line in terms of being mindful of unsustainably increasing expenditure. Ultimately, action is constrained by available resources in a low growth environment.”
Win Thin, global head of currency strategy at Brown Brothers Harriman & Co.:
“Budget deficits are lower than previously projected, as are borrowing needs. That said, the growth profile remains weak beyond this year, while the current account gap is seen widening. The primary surplus by 2024/25 seems a bit too optimistic.”
Carmen Nel, economist and macro strategist, Matrix Fund Managers:
“It was actually a very conservative budget. So that, I think, will encourage investors. Maybe what is disappointing is that we keep saying the same things, but not doing enough quickly enough to really get growth going. I think he’s reiterating what needs to be done, but government needs to start implementing these reforms.”
Isaah Mhlanga, chief economist at South African insurer Alexander Forbes:
“I think it is a good budget and it’s quite investor friendly especially if you look at how the Treasury has tried to restructure current spending toward investments. In the three years before the pandemic we saw government spending expanding in real terms, but what the budget proposes is government spending to contract in the next three years.”
Per Hammarlund, chief emerging markets strategist at Skandinaviska Enskilda Banken AB:
“A positive surprise. With Godongwana emphasizing the need for deficit and debt reduction, he hit the right note. However, the market is unlikely to cheer for long as pressure for continued social relief is big and is unlikely to go away any time soon.”