South African rand weaker on rescue package funding worries

South Africa’s rand was weaker early on Tuesday, reflecting worries over how the country will fund a 500 billion-rand ($26.5 billion) rescue package for its bruised economy.

At 0710 GMT, the rand traded at 18.8650 versus the U.S. dollar, 0.4% weaker than its previous close.

The rescue package, announced last week, includes a 200 billion-rand loan-guarantee scheme to encourage bank lending, 50 billion rand to top up social grants and 40 billion rand in unemployment benefits.

“South Africa remains fiscally vulnerable,” said Thu Lan Nguyen, emerging-market analyst at Commerzbank.

She said that despite the government’s approaching international financial institutions like the International Monetary Fund and World Bank it could take weeks for the formalities to be completed and the funds to flow.

South Africa’s economy was in bad shape before the coronavirus crisis started. Tith this year’s budget deficit is forecast to reach an 18-year high and loss-making state firms like South African Airways and power utility Eskom are a drain on the public purse.

Since early March, the outlook has deteriorated, with the rand losing close to 20% against the dollar and government bond yields rising.

The yield on the 2030 bond was 2 basis points lower on Tuesday at 10.935%, reflecting a slightly stronger price.

On the Johannesburg bourse, the Top-40 Index was up around 0.8% in early trade, tracking gains on Asian stock markets.