Here’s the reaction from traders, analysts and economists:
Piotr Matys, an analyst with Rabobank:
Mboweni’s budget was “the opposite of what the market was hoping” for.
“It’s also a timely reminder that the country faces tremendous fiscal
challenges amid weak economic activity constrained by structural issues.”
Win Thin, strategist at Brown Brothers Harriman:
“I was clearly too optimistic that Mboweni would announce enough fiscal tightening to keep the ratings agencies at bay. Risks of downgrades have gone up significantly.”
Bernd Berg, strategist at Woodman Asset Management:
“South Africa remains stuck in a low growth, high-debt environment and
it is difficult to get euphoric about the outlook for the rand at this
juncture. With little positive domestic drivers and a challenging external
environment, especially for South Africa’s main export partner China, it
is hard to see the ZAR outperform its EM peers in the short run.”
Razia Khan, chief Africa economist at Standard Chartered:
“The initial, knee-jerk reaction of the market to the budget was
understandably negative” and markets started to price in less benign
ratings reviews.
Still, “we believe that the tax buoyancy assumptions in the medium-term
are deliberately conservative”.
“Even the revenue ‘miss’ in the current year is arguably due more to VAT
rebates - a good thing, which ultimately strengthens tax compliance -
rather than just the growth slowdown. Although the higher debt path outlined may trigger some concern, this
is no justification for a downgrade in itself” from Moody’s.
Hans Gustafson, a strategist at Swedbank:
It will be a “very challenging” environment for South Africa “with a
higher borrowing requirement in an environment with tight US liquidity
and global weaker growth”.
“The rand needs to incorporate a higher risk premium.”
Mehul Daya, an analyst at Nedbank:
It’s a “double whammy” for the rand and local-currency bonds as the
budget was disappointing and a weaker euro is strengthening the dollar.
This means South African assets face internal as well as external
headwinds.
Kevin Daly, a money manager with Aberdeen Standard Investments:
South Africa’s budget was “somewhat of a disappointment” given that the
deficit target for 2018-19 was increased to 4% from around 3.5%.
“But we don’t think this is enough to prompt action by Moody’s to change
the outlook to negative.”
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