South African Rand Weakens Amid Budget Revision Anticipation

In early trading on Tuesday, the South African rand experienced a slight decline as investors looked ahead to an announcement from the Finance Minister regarding the presentation of a revised national budget.

Finance Minister Enoch Godongwana is expected to make additional modifications following the withdrawal of a controversial value-added tax (VAT) increase. This proposed increase had met with strong opposition from across the political spectrum.

The High Court intervened on Sunday, issuing an order to suspend the VAT hike and nullify the adoption of the fiscal framework. This ruling has cleared the way for Minister Godongwana to present revised budget proposals in parliament.

At 0741 GMT, the rand was trading at 18.57 against the dollar, reflecting a 0.43% decrease compared to its previous closing value.

The disputes surrounding the 2025 budget have emerged as the most significant challenge for the Government of National Unity coalition. This coalition was established last year after the African National Congress lost its majority in parliament during an election.

Initially, Minister Godongwana suggested a two percentage-point increase in VAT within a February budget. However, this was postponed at the last moment due to disagreements within the coalition.

Subsequently, he reduced the proposal to a one percentage-point VAT increase, to be implemented over two years, in a revised budget in March. Despite this adjustment, most political parties continued to reject the plan, leading to Minister Godongwana’s decision last week to withdraw it entirely.

While no major domestic economic data releases are scheduled for Tuesday, Wednesday will see the release of figures for March credit extension, budget, and trade.

The benchmark 2030 government bond showed a slight improvement in early trading, with the yield decreasing by 5 basis points to 8.815%.