The Budget that never was: SA's political gridlock rattles investor confidence

Source: Reuters.

The South African rand weakened to approximately 18.5900 to the US dollar following the announcement —its lowest level since early February 2025.

This marks the first such postponement in three decades since the end of apartheid, highlighting tensions within the coalition government. Additionally, the Johannesburg Stock Exchange experienced declines, particularly within the retail sector, as uncertainty loomed over potential tax policy changes.

Beyond domestic factors, the rand’s weakness was also exacerbated by a stronger US Dollar.

Said Andre Botha, head of Execution at TreasuryONE, "The US Dollar strengthened, pushing the US Dollar Index (DXY) to around 107.20, due to multiple factors. Investors are increasingly confident that the Federal Reserve will keep interest rates steady in the 4.25%-4.50% range for an extended period, with no cuts expected in the upcoming policy meetings.

"Additionally, former US President Donald Trump’s announcement of 25% tariffs on automobiles, semiconductors, and pharmaceuticals added to market uncertainty, further boosting the Dollar. These tariffs, set to begin as early as 2 April, could impact major economies like Germany, Japan, and South Korea, adding to global economic pressures.

VAT hike standoff

Central to the Budget Speech delay is a battle over proposed tax increases, including a large VAT hike. As South Africa’s fiscal position has worsened, Finance Minister Enoch Godongwana had been broadly expected to announce measures to reduce the budget deficit. However, the resistance within the GNU underscores the political tensions at play.

"A VAT increase is extremely politically sensitive, as it disproportionately hits lower-income households. Many coalition partners cannot afford to support such a hike particularly as they prepare for crucial and much contested municipal elections," said Harry Scherzer, chief executive officer of Future Forex.

"The rand’s decline on Wednesday is a clear signal that markets are growing uneasy about South Africa’s economic trajectory. Investors thrive on certainty and this delay has added a risk factor the country can’t afford. With the country’s already faltering fiscal position, any signals of instability here raises fear about future debt servicing, possible credit-rating downgrades, and reduced foreign investment."

Adding to the debate, Jurgen Eckmann, Wealth Manager at Consult by Momentum noted the postponement of today’s Budget initially came as a shock. "We quickly saw its immediate impact on markets and the exchange rate. Markets tend to 'spook' easily but it’s important to remember that this volatility is generally temporary. While we may see some short-term sell-offs in the market, this should not be seen as an indicator of sustained or long-term negative sentiment."

Investment amid uncertainty

Eckmann noted that for investors, moments like these can often present opportunities.

"Those considering new investments should speak to a financial adviser who can guide them on the best course of action. The key takeaway for investors is not to be overly reactive or make investment decisions based on emotion; markets tend to recover and stabilise over time, often emerging stronger, as we saw post-Covid.

"It remains critical to have a well-structured financial plan and not let temporary market shocks derail your long-term outcomes.

"Avoid fear-driven decisions."

On a broader level, there’s also a shining silver lining, Eckmann said.

"The strength of the GNU has been demonstrated, introducing more voices and perspectives into the decision-making process and ultimately promoting greater accountability.

"It is important to remember that this current uncertainty is temporary; when the Budget is finally tabled in March, we will hopefully see a stronger, more balanced Budget of consensus. This is a true demonstration of a democracy."