South Africa’s rand declined after the announcement that the national budget presentation would be postponed due to internal disagreements within the coalition government.
According to Reuters, the currency traded at 18.565 against the dollar, marking a 0.9% drop from its previous close. Finance Minister Enoch Godongwana, following the delay, stated that the government would engage in further discussions and aim to propose a new budget in March.
The postponement of the budget was attributed by the Democratic Alliance (DA), a key partner in the coalition government, to its opposition to an African National Congress (ANC) proposal to increase the value-added tax (VAT) by 2 percentage points.
Since the ANC no longer holds a parliamentary majority after last year’s election, they require support from other parties, including the DA, to pass the budget.
Market analysts were not surprised by the immediate reaction of the market to the news, anticipating that the current volatility would be temporary.
Danny Greeff, co-head of Africa at ETM Analytics, commented on the situation, emphasizing the ongoing negotiations within the government. "While this lack of cohesion raises concerns about the government’s ability to reach consensus, it is worth noting that the GNU (government of national unity) remains intact and actively negotiating – an indication that the process, however fraught, is still functioning," Greeff explained.
Investors were closely monitoring the budget speech for insights into the coalition government’s fiscal strategies, its approach to managing debt, and plans for economic reforms.
The delay in the budget also led to a significant sell-off in the country’s government bonds, with the 2052 dollar bond falling roughly 1 cent to be bid at 89.20 cents on the dollar, marking the sharpest decline since December.
Despite the market’s reaction to the budget postponement, Jurgen Eckmann, a wealth manager at Consult advisory group, suggested that market sentiment might rebound once the budget is presented.
"When the budget is finally tabled in March, we will hopefully see a stronger, more balanced budget of consensus," said Eckmann, indicating potential recovery in investor confidence.
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