Finance Minister Pravin Gordhan delivered his 2016 budget speech on 24 February 2016, and the rand showed a sharp decline soon after the details were published online.
While some of the rand weakness was due to Moody’s downgrading of Brazil, most analysts felt the rand’s depreciation signalled a negative interpretation of Gordhan’s budget.
NKC analyst Bart Stemmet said Gordhan did not do enough to stave off a ratings downgrade to junk bond status in the coming months.
“The steep exchange rate depreciation shortly after the budget was released suggests that the market agrees,” said Stemmet.
Shortly after Gordhan’s budget speech, Moody’s said it was concerned that the specific revenue measures that will accomplish smaller deficits predicted for 2017/18 and 2018/19 have not yet been identified.
Ratings agency Standard & Poor’s also reacted, saying that South Africa’s budget for 2016 lacked significant policy announcements that would spur GDP growth.
South Africa’s weak economic growth and structural problems have resulted in the rand weakening from around R6.00/USD in 2006 to the current R16.06/USD.
The table below shows the change of the rand after each budget speech between 2006 to 2016.
|Rand vs US dollar|
|Year||Date||Finance Minister||Before budget speech||After budget speech||Percentage Change|