Rand hitting R30/$ a very real possibility, warns economist
Renowned Economist Dawie Roodt has warned that the rand could hit as high as R30 to the US dollar if the private sector ever decides to stop funding the government – a scenario he believes could be possible within the next few years.
Roodt, the chief economist at Efficient Group, is an award-winning economist and a foremost expert in South African financial matters.
Speaking to Daily Investor, Roodt explained that the country has a substantial fiscal deficit, and the day will come when the private sector refuses to fund the state further.
“The private sector will withdraw its funding to plug the fiscal deficit gap, and, in fact, they are already doing that,” he said.
“Within the next two to three years, the private sector will say, ‘enough is enough’ and stop funding the state. Many bad things will then happen.” This includes long-term interest rates shooting up and the rand coming under immense pressure.
“I can easily see the rand going to R25 or R30 to the US dollar in the next two to three years. Long bonds can go from 25% to 20%,” Roodt said. He added that inflation could rise from the current 5% to well above 10% amidst the state’s poor financial situation.
While this seems like an extreme scenario, other economists from Investec and HSBC have already warned of rand pressures, with HSBC already expecting the rand to weaken to over R20/$ in early 2024.
At the end of September, economists warned that government-determined factors have a massive say in the rand’s performance.
For example, Investec noted that, during this month, there has been a rise in commodity prices, especially metals and industrial prices, which should have strengthened the rand. But failures at Eskom and Transnet have dampened this benefit.
HSBC’s views align with Roodt, noting that the rand is expected to decrease in value against the dollar due to a deteriorating fiscal situation and an expanding current account deficit.
“We think global forces and domestic structural drivers are likely to dominate and push the currency to new record lows in the months ahead,” said the HSBC report.
According to HSBC’s forecasts, the rand could hit R20.50/$ by 2024 as structural factors – the worsening fiscal deficit and widening current account deficit – swap roles with cyclical factors, such as inflation and load shedding, to become the major drivers of the currency in the coming months.
Roodt noted that the next five years in South Africa will be a rough ride.
“The ANC government has run local governments, state-owned enterprises, and the national accounts into the ground, and with (the party) expected to remain in power for the next five years, it is unlikely that anything will change. In fact, it will likely get worse,” Roodt added.
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