Anchor Capital said that Finance Minister Enoch Godongwana's budget speech will be tabled against a global backdrop of heightened political and economic uncertainty while domestic fundamentals continue to show resilience.
Casey Sprake, Economist at Anchor Capital, said that although geopolitical tensions with the US remain a key risk, the local economy has entered the year with notable momentum, supported by easing inflation, a more accommodative monetary policy, a stable electricity supply, and improving business and consumer confidence. “Structural reforms are progressing, and while logistical bottlenecks persist, operational improvements are becoming increasingly evident—albeit somewhat overshadowed by external volatility.”
Sprake added that the Government of National Unity (GNU) appears to be holding up, adding a degree of political stability that supports ongoing economic reform efforts. “ However, global risks have escalated significantly, particularly following a series of executive orders by US President Donald Trump. These include tariff hikes on select US imports and retaliatory measures from affected countries, adding to trade uncertainties. More concerningly for South Africa, the US has issued an executive order to cease all aid to the country, raising the risk of further, potentially more damaging, South Africa-specific measures. Should the National Treasury absorb any of the costs previously covered by US aid, this could introduce additional fiscal pressure and reinforce a conservative budget stance.”
Sprake said that despite the growing headwinds, we still see potential for positive sovereign credit rating action in the future, contingent on continued progress in growth-supportive policy reforms and fiscal consolidation. “Given the recent escalation of economic and fiscal risks, such upgrades are unlikely in the near term. Furthermore, regarding the greylisting outlook, the government has indicated that meeting the June 2025 deadline for FATF compliance is unlikely. With several key reforms still in progress, greylisting may remain in effect until at least Q4 2025, thereby extending the timeline for achieving full compliance.”
Sprake added that Anchor's budget wish list includes no budget reduction for the National Prosecuting Authority (NPA) or, better yet, allocating more money to the NPA and the Special Investigating Unit (SIU) to continue the fight against corruption and state capture at large. “A continued demonstration of the government's commitment to fiscal consolidation with difficult actions rather than simple words. Potential fiscal costs if the Treasury assumes financial responsibilities previously funded by US aid programmes. A credible plan that controls debt accumulation and reduces debt levels rather than allowing them to escalate.”
Sprake said that there should be a demonstration of additional measures to improve the ease of doing business in South Africa. “Further details on potential liabilities of the Road Accident Fund (RAF) and other distressed SOEs, including Denel, the Land Bank, and SANRAL. Detailed plans to address the financial distress of municipalities nationwide.
Clarity surrounding the future of the SRD grant - will it finally be formalised into a basic income grant? Will the benefit level be raised? Clarity around the funding structures of the latest bills that have been passed—namely the National Health Insurance (NHI) Bill and the Expropriation Bill. An update on the long-awaited fiscal rule framework.”
Sprake added that whether any of the abovementioned wish list items will come to fruition remains to be seen. “Overall, reining in new expenditure pressures is key, as is making savings, avoiding wastage, inefficiency, and inappropriate spending, focusing on economic growth-creating initiatives, and collectively navigating the increasingly uncertain global geopolitical environment.”
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