Key points:


  • In the wake of the budget, it is worth taking stock of SA’s fiscal position relative to the rest of the world, in the way that it might relate to SA’s ability to attract foreign capital and the way it might influence trade in the ZAR and domestic bonds. What is clear is that SA’s fiscal position has deteriorated and remains under considerable pressure.
  • The findings also highlight why it might prove rather challenging for the ZAR to make a full-scale recovery and why the ZAR needs to trade at a considerable discount to fair value to ensure that SA’s deficits are comfortably funded.


Baseline view:

The ETM models offer insight into SA’s fiscal risks and the need for SA markets to compensate investors for risk. It also provides a clear reason why the ZAR might struggle to make a substantial recovery vs the USD in the absence of a USD retreat. ZAR may struggle to trade back towards fair value closer to 18.00/dlr.