Millions of words and trillions of pixels have been published on Covid-19. I cannot possibly add value to that, so in this note we will focus on other things crowded out by the virus.
SURVIVING THE DOWNGRADE
South Africa exited the World Government Bond Index at the end of April, after having finally been downgraded in March. The rand deteriorated from about R15,50/$ to lows of R18,50/$ and the 10-year yield seems to have stabilised at around 9% after spiking above 13% in late March. How much of this is due to the downgrade and how much is influenced by international developments relating to Covid-19, is difficult to say.
Fact is, the country endured both a credit ratings downgrade and a Covid-19 attack and has not been forced to go to the International Monetary Fund (IMF) for the typical conditional loan. South Africa is indeed approaching the IMF, but that is for Covid-19 financing, which is different from the normal structural adjustment loans. South Africa’s floating exchange rates, and deep and highly liquid financial markets have once again proven their value.
The country can finance its current needs from the capital market and is not in the liquidity crunch it faced with the debtstandstill in 1985. We will see how the capital markets react to the new budget on 24 June, but so far so good. The‘good’ will of course only remain if a road back to fiscal sustainability is also mapped out.
Nedbank Private Wealth is the high net worth division of Nedbank Group providing Global Integrated Banking, Wealth Advisory and Asset Management in South Africa and Abroad.
For information contact Gillian Kabe at firstname.lastname@example.org or 079 763 1152.