Weak rand worries Finance Minister

Finance Minister Enoch Godongwana said the weak rand causes problems for his department but that the government cannot do much about it.

Godongwana shared his views on the rand during an interview with CNBC Africa on the sidelines of the African Development Bank Annual Meetings in Sharma El Sheikh, Egpyt.

He said if the rand does not strengthen, it will greatly impact the country’s finances and negatively affect his budget.

“When I put together my budget for the year, I give my borrowing requirement. If interest rates increase, my numbers will be substantially higher,” he said.

He explained that the weak rand is going to attract higher interest rates, which in turn impacts South Africa’s debt servicing costs and the total debt burden.

However, while the weak rand poses challenges for the Treasury, it is good news for export sectors like mining.

“I was debating the issue with Mineral Resources Minister Gwede Mantashe, and he said the weak rand was good for mining,” Godongwana said.

“In that sense, the weak rand has both positive and negative effects, depending on which ministry you look at.”

Godongwana said he discussed the weak rand during cabinet meetings as part of “financial matters” and presented a forecast.

However, he argues that the government cannot do much about the currency’s weakness.

“There are very limited things the government can do. Many things are beyond the government’s control, like a sell-off of emerging market assets,” he said.

Rand weakness

The rand has been hammered by increased load-shedding, economic uncertainty, and its dispute with the United States.

The rand has weakened more than 12% against the dollar this year, making it the worst performer in a basket of 16 major currencies tracked by Bloomberg.

The South African currency weakened to R19.49 per dollar on Friday morning, breaching the all-time low of 19.35 set during the Covid-19 lockdown in April 2020.

The weak rand will further hurt the struggling economy through higher inflation and increased interest rates.

In contrast to Godongwana’s claim, many economists and business leaders said most of the pain related to rand weakness is self-inflicted.

Head of markets research at RMB Isaah Mhlanga said that local economic and political problems are reflected in the currency.

He mentioned some global events affecting the rand’s value, like poor data coming from China and geopolitical tensions.

However, he said the biggest driver had been the bad sentiment surrounding Eskom and potential stage 8 and above load-shedding.

Others also said South Africa’s structural problems, including power shortages, poor economic policies, and infrastructure collapse, play a big role in the rand’s weakness.

The chart below shows the rand’s value against the US Dollar compared with the Brazilian Real, the Indian Rupee, and the Australian Dollar.