BUDGET 2023 REACTION
Give that man a Bell’s — Rand, bonds, JSE all gain as markets, analysts give budget initial thumbs up
For now, Finance Minister Enoch Godongwana has allayed market fears that South Africa’s debt trajectory is spinning out of control. The budget he unveiled on Wednesday triggered rallies in the rand and the domestic bond and equities markets, while analysts and economists gave it a cautious thumbs up.
The initial market reaction is always a knee-jerk indicator of a South African budget’s reception with investors – read capital – and the initial reception was positive.
The rand immediately rallied against the dollar after the minister began speaking, rising to 18.13/dlr from 18.29 previously. It then pared those gains to 18.20/dlr about an hour later, but it was a marked contrast with President Cyril Ramaphosa’s Sona earlier this month, when the rand extended its 2023 losing streak.
Meanwhile, the yield on the 10-year government bond fell 11 basis points to 10.185% from the 10.295% it was fetching around the time the minister began speaking. A bond’s yield and price have an inverse relationship and lower yields mean lower borrowing costs for the government. So the bond market really needs to be convinced that the risk of holding the debt is abating.
And the JSE — which is not, it must be said, as sensitive to budget speeches — reversed its earlier losses. The JSE’s all-share index was down 0.60% about an hour after the minister started speaking compared to being 1.0% lower earlier.
“The budget did provide what markets are looking for, the government has absorbed a substantial portion of Eskom’s debt. Of course, it does push up the government debt to GDP ratio, to 73.6% from the previous 71.1% peak, but it seemed to be largely credit neutral. The ratings agencies already incorporated Eskom’s debt into their credit rating review and so, from that perspective, it is not credit rating negative,” Annabel Bishop, Chief Economist at Investec, told Business Maverick.
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The consolidated budget deficit will decline from 4.6% of GDP in 2021/22 to 4.2% of GDP in 2022/23.4% for the upcoming year and reaching 3.2% of GDP in 2025/26. So things are moving in the right direction, or at least that is the forecast which will hinge among other things on the economic growth forecasts panning out — an area where Treasury has tended to overshoot incorrectly.
“Real GDP growth is projected to average 1.4% from 2023 to 2025, compared with 1.6% estimated in October,” the minister said. The markets were certainly expecting a downward revision, but time will tell if the forecast hits the mark.
“Minister Godongwana’s 2023 budget speech, which provided details of spending and revenue collection proposals to implement the government’s plans to address SA’s energy crisis and socioeconomic challenges, were a welcome change for the nation. However, whether these initiatives will be a cure or merely serve as a band-aid for some of South Africa’s major issues, time will tell,” Shawn Duthie, an Associate Director with consultancy Control Risks, told Business Maverick.
“Good news for businesses in South Africa will be the ability to deduct 125% of its investment in renewable energy. With no size threshold on the projects that qualify, this will incentivise large and small businesses to invest in solar, wind and other renewable projects for their own operations, easing the strain on supply,” he said.
Read more in Daily Maverick: “Government plans to offer tax rebates for solar panel installations at homes”
So for now, give the minister a Bell’s — which will now cost 4.9% more.
Having said that, the minister did conclude his budget speech by saying: “Mr Bell, a Bell’s to you, and the thousands of public servants who work behind the scenes to keep our country going.”
The rand would not be at these levels and bond yields would be much lower if it were not for the failing state that “public servants” have let crumble under their watch. Godongwana has clearly not been to a Home Affairs Office lately or driven a rural or small town road. If he didn’t reside in a bubble, he wouldn’t be giving a public servant a Bell’s. DM/BM
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When you see all those fatcat politicians patting themselves on the back for doing such a good job, it makes me sick. They are totally out of touch with reality. Did he mention spending billions on bridges so the kids could get to school? Then what? They have no electricity, no toilets, no books, no education. But nice bridges, that will either fall down due to poor construction or get stolen in a year.
I have been fairly positive that this country will eventually come right, but I now have no hope anymore.
Triggered a Rally in the Rand? What Drivel! Less than a month ago the Rand was below R17 to $1, and this morning it is already at R18,31, I am actually hugely disappointed at the level of financial journalism served up by DM. Equity markets are only defying gravity because of the huge Blue Chip off shore Hedges with hard currency revenue streams such as Richemont, British American Tobacco, Glencore, Naspers, Prosus etc which make up the bulk of the JSE.
I have to add that a R15000 tax rebate for anyone who can afford to put in a solar system is hardly an incentive at all! What about the rest of the costs. To put it into perspective my latest quote to provide enough electricity to run lights, TV, Wi-Fi, and Solar friendly fridges(no stoves or geysers) for a small middle income home(R900,000 per annum before tax), quote of R232,000 including VAT of which panels were R45,000 less than 25% of the total cost, while VAT is R30,000!!!! Do me a favour if anyone can afford it they have or are putting up the Solar systems already! This is hardly going to open the floodgates and the income groups who really need it can’t afford it!
Many of us have been exposed to the meaningless, almost futile task of drawing up budgets. Two things I’ve learnt a) Budgets are almost always wrong b) It simply depends which way they’re wrong, and by how much they’re wrong.
The real question is: Who’s going to pay?
@ Roland. I assume this is a rhetorical question? We all know that is the same taxpayers that are going to pay for it, again. I am so tired of hearing that the rich must be taxed more. There is never any word on how much the rich DO pay and how many people they employ. As an average income family, we pay one third of our income to SARS and pay another 15% to VAT plus other hidden taxes. The poor should be praying that the rich people stay in SA because when they leave, it means less people funding their government grant.
Long may the honeymoon last before reality comes a knockin!