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Rand Weakens First Day in Five as Gordhan Says Deficit May Grow

The rand weakened against the dollar for the first time in five days as Finance Minister Pravin Gordhan said the budget deficit in Africa’s largest economy will probably widen this year as economic growth slows.

South Africa’s currency fell as much as 0.8 percent to 8.8905 per dollar and was trading 0.7 percent down at 8.8776 by 3:27 p.m. in Johannesburg. Yields on 10.5 percent government bonds due December 2026 jumped seven basis points, or 0.07 percentage point, to 7.33 percent.

Gross domestic product will expand by 2.7 percent this year, less than the 3 percent estimated in October, Gordhan said in his fourth budget speech in Cape Town today. The budget deficit target for the year through March was raised to 5.2 percent of GDP from 4.8 percent estimated in October, he said. The median estimate of 11 economists surveyed by Bloomberg estimated a deficit of 4.5 percent.

“It is a concern that the government will need to rely on significant foreign portfolio flows to fund its budget,” Ion de Vleeschauwer, the Johannesburg-based chief dealer at Bidvest Bank, said by phone. “There’s a shortfall in tax receipts that needs to be financed with foreign funds.”

Gordhan estimates the budget shortfall to narrow to 4.6 percent next year compared with an earlier projection of 4.5 percent and to 3.9 percent in 2014/2015. The government is experiencing a “revenue squeeze”, the minister said.

The budget deficit targets are “optimistic” numbers and something special needs to happen to achieve them, de Vleeschauwer said.

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