The rand plummeted and bonds extended declines after investors were presented with the stark reality of what bailouts for the embattled state power utility will cost South Africa.<\/p>\n
The currency retreated 2%, the most since August and the biggest drop in emerging markets, to R14.924 per dollar, as of 2:51 p.m. in Johannesburg. The yield on local-currency debt due 2026 jumped 18 basis points to 8.38%.<\/p>\n
Eskom Holdings SOC Ltd will receive R138 billion ($9.4 billion) in bailouts through March 2022, or R10 billion more than previously allocated, according to the medium-term budget policy statement released by Finance Minister Tito Mboweni on Wednesday.<\/p>\n
He warned that extra support may be needed if plans to turn the loss-making utility around are delayed.<\/p>\n
That means South Africa\u2019s government debt will top 70% of gross domestic product in the next three years and may continue rising after that as bailouts for state-owned companies boost spending, according to the National Treasury. The ratio was previously projected to rise to 60.2% in 2024, before decreasing in subsequent years.<\/p>\n
A combination of bailouts for government firms, declining economic growth and falling tax revenue will cause the budget deficit to widen to 5.9% of gross domestic product in the fiscal year.<\/p>\n
\u201cThe South African rand is traveling back towards the 15 level as the medium-term budget statement compounds investors fears,\u201d Simon Harvey, a London-based market analyst at Monex Europe Ltd.<\/p>\n
\u201cBallooning projected debt-to-GDP levels, increased government support for Eskom, and a widening budget deficit doesn\u2019t bode well for an economy struggling for growth while under the microscope of both foreign investors and rating agencies.\u201d<\/p>\n