South Africa: Tougher economic circumstances – TDS

Finance Minister Tito Mboweni presented the National Budget for 2020 today. Nearly all short-term projections have worsened against the promise to improve the budget in the longer term, strategists at TD Securities report. USD/ZAR trades at 15.114.

Key quotes

“Real GDP is expected to expand less than previously projected in the October 2019 MTBPS and the February 2019 budget. On the other hand, expenditure is expected to rise to 36% of GDP in 2020/21 from 35.7% at the end of this FY.”

“The debt trajectory isn't improving through to 2022/23. During this period, debt/GDP actually worsens by 0.3% to 71.6%.” 

“This budget only guarantees at least two more years of additional macro and financial deterioration under the current projections.”

“It is very hard to envisage a scenario where Moody's retains South Africa's investment grade rating. A downgrade may occur in March or in November. But the cumulative likelihood that South Africa is downgraded to junk this year is probably no less than 75% now.” 

“We think USD/ZAR should move higher, not lower, and so should SAGB yields. We continue to forecast the ZAR at 15.15 by the end of this quarter, but higher at 16.50 by year-end.”