About us
Culture
Insights
Solutions
Sustainability
Contact us
Get in touch
Find us
Get an overview
Awards

Deals

Find out how we enable clients to realise their ambitions and advance ESG goals.

Explore About us
Women of CIB

Young Analyst Programme

Explore Culture
Gain knowledge
Articles

Get the competitive edge with leading insights from industry experts.
Conferences | Nedbank CIB

Conferences sponsored by CIB
Research

Register to access expert reports, analyses and up-to-date investment research.
Explore Insights
Achieve strategic goals
Corporate Finance

Nedbank CIB Corporate Finance is an award winning Corporate and Investment Banking team that provides clients with end-to-end M&A and debt/equity advice, equity markets, regulatory and sponsor advice.
Financing

Fund your business growth with innovative equity and sustainable finance solutions.
Investing

Find the investment option that gives your business real returns.
Markets

CIB offers a range of tailored financial solutions that enable clients to manage the risk of swings in value due to foreign exchange, inflation, interest rate, trade and other movements – a process called hedging – as well as deal in equities and bonds.
Transacting

Stay in control and keep your assets safe with our bespoke transaction services.
Explore Solutions
Explore Sustainability
Explore Contact us
Back
About us

Awards

Deals

Find out how we enable clients to realise their ambitions and advance ESG goals.
Back
Culture

Women of CIB

Young Analyst Programme

Back
Insights

Articles

Get the competitive edge with leading insights from industry experts.

Conferences | Nedbank CIB

Conferences sponsored by CIB

Research

Register to access expert reports, analyses and up-to-date investment research.
Back
Solutions

Corporate Finance

Nedbank CIB Corporate Finance is an award winning Corporate and Investment Banking team that provides clients with end-to-end M&A and debt/equity advice, equity markets, regulatory and sponsor advice.

Financing

Fund your business growth with innovative equity and sustainable finance solutions.

Investing

Find the investment option that gives your business real returns.

Markets

CIB offers a range of tailored financial solutions that enable clients to manage the risk of swings in value due to foreign exchange, inflation, interest rate, trade and other movements – a process called hedging – as well as deal in equities and bonds.

Transacting

Stay in control and keep your assets safe with our bespoke transaction services.
Back
Sustainability
Back
Contact us
Back
  • Awards
  • Nedbank Corporate and Investment Banking leads the structuring, negotiation, and execution of a multi-billion rand financing deal for Envusa Energy.
  • Women of CIB
  • Young Analyst Programme
  • Africa's pathway to a climate-resilient economy | Nedbank CIB
  • Commercial property trends 2022
  • Green energy in the developing world | Nedbank CIB
  • How sustainable finance creates value
  • How the property sector recovered in 2023
  • Two wins for sustainable finance leadership | Nedbank CIB
  • National Contributor empowers FURTHER IMPACT entrepreneurs
  • What happens when finance meets sustainability?
  • Africa’s renewable-energy projects
  • Breaking down barriers for energy transition in mining
  • Healthcare conference | Nedbank CIB
  • African Mining Indaba | Nedbank CIB
  • COP 28 | Nedbank CIB
  • South Africa (SA) Auto Week | Nedbank CIB
  • IHS Affordable Housing Conference | Nedbank CIB
  • Africa Energy Forum | Nedbank CIB
  • Investor research
  • Investor-research
  • How loadshedding impacts inflation | Nedbank CIB
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Investor Research
  • Corporate Finance
  • Financing
  • Investing
  • Markets
  • Transacting

The Budget cost of playing Russian roulette

The Budget cost of playing Russian roulette

author

Reezwana Sumad, Walter De Wet

Posted 19/05/2023 2 mins

2 mins

Uncertainty within South Africa’s political economy has increased further this week as the now widely publicised deterioration of the relationship between South Africa and the US has gathered momentum. While the rand has reached our target of R19,00 against the USD, bond yields have moved well beyond what we expected. At this point, bond yields reflect substantial fiscal risk, in our view.

Worsening political economy; exports to the US (and growth) at risk

South Africa risks falling out of the AGOA trade agreement with the US, which would threaten around USD3,4bn worth of exports. Our initial estimates suggest that South Africa’s GDP growth could decline by almost 1% during the first year of exclusion from the AGOA.

The Budget implication of three scenarios

We estimate the impact of lower growth amid rising political tension with the US on South Africa’s fiscal position and the resultant impact on bond yields. We present three broad scenarios – our current base case, exclusion from the AGOA and a scenario where more punitive measures are taken against the country.

Reaction of bond yields to each scenario

We simulate our fair-value estimate for the 10-year bond yield in each scenario. Exclusion from the AGOA could see South Africa’s bond yield rise by around 60 basis points (bps) higher than where it would have been under a fiscal outcome projected by the Budget. What is also clear is that at current levels, the 10-year bond yield is pricing in plenty of country risk already.

Keep an eye on debt levels and debt-servicing costs

Based on the National Treasury’s (NT’s) own modelling analysis from the Budget and using the market pricing currently (inflation 100 bps higher, yields 100 bps higher and a rand that is R2/USD weaker), the debt level would need to rise by R84,4bn, while debt-servicing costs should increase by R6,5bn. 

Gain full access to this report by signing up to the Nedbank Research Hub

Register