A diplomatic spat between the United States and South Africa that has brought the rand to its worst level may end Pretoria’s record of surpassing IMF predictions for key budget parameters.
Years after the government graft and bailouts for dysfunctional state-owned enterprises undermined fiscal buffers, the National Treasury’s determination to restructure public finances resulted in considerable reductions in state debt and budget deficits. It has even outperformed IMF forecasts for key measures every year since 2020.
The staff of the Washington-based lender, who visited South Africa and spoke with local authorities in March, will present their findings to the institution’s executive board.
IMF reduced its GDP prediction for Africa’s largest industrialized country, to 0.1% from 1.2%. It anticipated that the budget deficit will expand through the fiscal year ending March 2026.
America charges that Pretoria delivered weaponry to Russia, which have alarmed traders who are fearful that this may affect the rand and government bonds. It has been estimated that a one-percentage-point increase in inflation and interest rates, along with a one-rand depreciation in the local currency versus the dollar, would increase total government debt and loan-service expenses by more than 60 billion rand.
South Africa’s rand has lost more than 12% of its value versus the US dollar this year, making it the poorest performance among a basket of 16 major currencies.
