Budget negotiations and Trump tariffs spark rand’s decline amidst political turmoil

THE rand fell by nearly 1% to R18.40 against the US dollar over the course of last week as market concerns continued over National Budget deadlock. Whether consensus in Parliament will reach consensus before the Wednesday deadline.

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Parties within the Government of National Unity (GNU) are divided on whether to support Finance Minister Enoch Godongwana’s proposal to increase value-added tax incrementally by 1 percentage point over the next two fiscal years to plug the R38 billion budget shortfall.

May’s Investor Services has already fired a warning shot, saying that if the budget fails to pass in Parliament, longer-term fiscal concerns could be at risk. On the political front, the DA and MK/EFF remain unlikely to back a VAT hike, which will require regression, and parties’ enter to have a solid for economic concessions from the ANC in order to vote for the Budget.

However, the ANC continues to assure the public that it was in control of the situation and was continuing to have discussions with all parties in a bid to reach consensus before the 1 April ginning of the next fiscal year.

Andre Cilliers, currency strategist at TreasuryONE, said a deadlock in Parliament could have dire consequences for the financial markets.