Floris Slabbert talks about the rand and how the 2017/2018 Budget will affect its performance and stability on Die Groot Ontbyt.

 

Rand strengthens

  • The rand could trade at 12.85 per US dollar in the near future, if there is balance in the Budget tabled in parliament on 22 February.
  • If the political landscape remains stable and there are no significant international upsets, we could even see a level of R12.50 per dollar.

 

How are markets reacting to the weakening dollar?

  • There seems to be a correlation between local market performance and the stronger rand. As the rand strengthens, the index trades lower and vice versa. Of course, exceptions to this trend are commodity counters.
  • US markets don’t seem to be affected by the dollar weakness. Since the start of 2017, the NASDAQ has returned around 6.5% and the Dow Jones Industrial Index around 4%. These positive returns can be ascribed to the expectation of economic growth, reduction of corporate taxes and reduction in financial regulation in the US.

 

What is the balance Minister Gordhan must maintain to present a favourable budget?

  • The Minister must find an additional R28 billion from a struggling economy, which is no easy task. Some of the issues he will have to balance include:
    • While growing the state’s revenue, he must consider issues like unemployment and economic growth.
    • In the Medium-term Budget, he aimed to reduce government spending by R20 billion.
    • However, this reduction may not affect the approximately 17 million people receiving social grants.
    • At the same time, the Budget must also satisfy the requirements of credit rating agencies.

 

Where will Minister Gordhan find an additional R28 billion?

  • Most likely an increase in taxation of trusts, estates and donations between spouses.
  • The planned sugar tax will yield around R3 – 4 billion if implemented.
  • An additional fuel levy seems more acceptable to government than a VAT increase and will yield between R4 – 6 billion.
  • We hope that there will be some relief for pensioners and others relying on social grants.
  • And ultimately, that the Minister will achieve a balanced budget that will keep the rand stable.

 

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