The rand on Thursday morning had returned to levels seen just before finance minister Tito Mboweni delivered the budget, with analysts saying it was better than expected, but is was unclear whether if the government can deliver on its promises.

The local currency surged to a one-year high against the dollar on Wednesday, strengthening as much as 0.9% to R14.3919/$, and ultimately ending the day 0.31% better.

At 8.20am on Thursday, the rand was 0.12% softer at R14.499/$, 0.23% weaker at R17.6528/€ and 0.23% weaker at R20.5295/£.

Most analyst comments were positive, citing the improved outlook for SA’s battered public finances, pro-growth measures and the avoidance of tax hikes.

SA’s fiscal position in the 2020/2021 fiscal year is shaping up to be less dire than feared, fuelling an optimistic tone from Mboweni, Capital Economics Africa economist Virág Fórizs said in a note.

It will, however, remain politically challenging to maintain expenditure restraint, given the weak economic backdrop, and the outlook for SA’s finances were probably not a rosy as Mboweni suggested, said Fórizs.

“It’s notable that the language around a planned contentious public sector pay freeze, which formed the bulk of the expenditure restraint outlined in last October’s medium-term budget policy statement, has been changed to ‘fair negotiations’ over wages,” she said.

SA needs to stick to its budget estimates and then attempt to improve them, but faster economic growth is the key, Investec chief economist Annabel Bishop said in a note.

Economic growth will rely on structural reforms, which is not the remit of National Treasury, but the government itself, and these need to happen fast, she said.

“We believe the ratings pressures are off for any downgrade in the first half of this year, but SA may stay on the current negative outlooks from Fitch and Moody’s as key will be achieving its new budget estimates, and the ratings agencies expectations on these,” she said.


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