The rand strengthened 1.1% in afternoon trade on Wednesday, after finance minister Malusi Gigaba delivered a budget speech that steered clear of any shocks or nasty surprises, falling in line with what many analysts were expecting.<\/p>\n
Following the speech, the local unit firmed from R11.76 to R11.63, indicating that investor confidence in the budget has improved.<\/p>\n
“The overall sentiment is positive, although the budget speech poses specific challenges,” said Wessel Lemmer, senior agricultural economist at Absa AgriBusiness.<\/p>\n
“Measures announced to curb the national debt, public spending and to increase government income through fiscal measures may have addressed Moody\u2019s standing concerns on these issues.”<\/p>\n
“However, Moody\u2019s will have the last say and in light of the measures announced today; we expect Moody\u2019s to postpone a downgrade at the end of February.”<\/p>\n
Ahead of the speech, the rand traded slightly weaker as investors and traders bade their time for clarity on how the national government would plug a R50 billion hole in the budget.<\/p>\n
Many expected a VAT hike as well as tougher taxes on the country’s wealthy.<\/p>\n
What Gigaba delivered was pretty much in line with these expectations, with VAT increasing to 15%, and ad valorem excise duties, estate taxes and donations taxes also hiked.<\/p>\n
According to some analysts, the budget did include some surprises, but they were quite positive – specifically, the adjustment of the country’s tax brackets, where the expectation was that they would stay the same.<\/p>\n
Another positive surprise was the move to keep medical aid tax credits – albeit with a new caveat, where it would be capped, to make way for the National Health Insurance levy. It was anticipated that the tax credit would be done away with entirely.<\/p>\n
Despite talk of removing the zero-rating for VAT on fuel in the country, this, too, was not announced. However a hike in the general fuel levy as well as the Road Accident Fund levy delivered enough of the same effect.<\/p>\n
According to\u00a0Kwaku Koranteng, acting head of Absa Asset Consulting, the budget speech – along with recent political developments in the country, as well as the attempts to improve and stabilise the country’s State Owned Enterprises – will help in avoiding another downgrade.<\/p>\n
\u201cThe market feels that the budget will be good enough to stave off a downgrade by Moody\u2019s,\u201d Gordon Kerr, a fixed-income analyst at Rand Merchant Bank told Bloomberg.<\/p>\n
The budget \u201clooks like a safe and steady approach,\u201d said Julian Rimmer, an emerging-markets trader at Investec Bank Plc in London. \u201cIt was a potential banana skin that\u2019s been avoided and this looks to me like exactly the kind of slightly more conservative, stable, playing-it-steady approach that the markets were hoping to see from Ramaphosa.”<\/p>\n
The rand has advanced 12% since Cyril Ramaphosa was elected as leader of the ANC in December, setting him on a path to become the country\u2019s president when Jacob Zuma resigned last week.<\/p>\n