Rand strengthens as public sector wage bill is pruned

The rand strengthened against the US dollar on Wednesday afternoon after Finance Minister Tito Mboweni revealed wider government deficits and higher debt in his budget speech.

The rand gained almost 20 cents against the US dollar to reach R15.17 at 14:44, from R15.32 an hour before Mboweni delivered his 2020 budget speech in which he unveiled proactive steps to cut the ballooning public sector wage bill.

Government bonds fell by 1.2% on Wednesday, with the yield on the benchmark 2026 bond at 7.7 %.

On the local bourse, the broader all-share index was nearly 1% lower at 54 404 points at 14:44.

Arguably, the cuts in the public sector wage bill, which amount to R160.2 billion over the next three years, are likely to create goodwill in the investment community about the government’s commitment to stabilising public finances. Mboweni expects the public sector wage bill to reduce by R37.8 billion in 2020/21, R54.9 billion in 2021/22 and R67.5 billion in 2022/23.

The medium-term reductions in the wage bill will target public servants in the national and provincial departments as well as the state-owned enterprises (SOEs) that have been enjoying government bailouts.

SA is battling to kick-start economic growth, with National Treasury lowering its economic growth forecast for 2020 to 0.9% from earlier expectations of 1.2%, which is in line with the expectations of credit rating agency Moody’s, the only one of the three major credit rating agencies to not already have downgraded SA to junk.

However, public finances are deteriorating. Gross national debt is expected to increase to 71.6% of GDP over the next three years and the budget deficit is expected to drop by a small margin to 5.7% over the same period from the current 6.8%.

Source: moneyweb.co.za