The exchange rate of the South African rand slumped to a new all-time low of 19.51 units of the rand for every dollar on May 12. This nosedive came after the U.S. ambassador to South Africa, Reuben Brigety, accused the African country of secretly supplying weapons to Russia on the same day. This was despite the denial from the South African foreign affairs ministry about the allegation. Moreover, the banking giant JP Morgan had earlier projected the South African economy to contract by 0.2%, down from the earlier projection of 0.3%.

The drop in the value of the South African currency could potentially lead to a number of economic problems for the country. One of these problems is the possible restriction of the African Growth and Opportunity Act (AGOA) preferential duty-free access to the US market. If the US government were to take retaliatory measures, this could have an even worse impact on the South African economy.

JP Morgan also warned that if an electricity situation is not resolved, the already pessimistic current account projections for the African nation will become more depressed. This would result in further depreciation of the rand. Additionally, South Africa's gross domestic product (GDP) could also continue to contract in the near future, thus leading to a deeper economic crisis for the country.

The entire matter is serious, and the U.S. has made it clear that is does not see the issue as resolved just yet. While South African President Cyril Ramaphosa's office is reportedly attempting to launch an inquiry into the matter, the economic and diplomatic repercussions for the country could prove to be immense. Hence, it is essential that the necessary steps are taken to prevent further damage to the economy.



Other News from Today