Last week, Finance Minister Enoch Godongwana’s 2025 Budget presentation was postponed to 12 March as GNU partners failed to find common ground on discussions surrounding a proposed 2% VAT hike. The Federal Reserve remains cautious about rate cuts as inflation risks persist.
International Market Developments
Minutes of the Federal Reserve January meeting revealed a cautious stance on monetary policy, with officials acknowledging both policy uncertainty and persistent inflation risks. The minutes indicated ongoing debate over whether interest rates remain significantly above the neutral rate, with some policymakers suggesting they might not be far above it. Additionally, the Fed discussed the inflationary effects of trade and immigration policies, noting that President Trump’s policies could hinder the disinflation process. Businesses expressed concerns about passing on higher input costs due to potential tariffs, adding to inflationary pressures. Despite this, the Fed remains prepared to hold rates steady amid economic policy uncertainty. Fed Chair Jerome Powell further reinforced that the Fed is in no rush to cut rates, as US Treasury yields rose amid increased uncertainty regarding trade and fiscal policy.
Local Market Developments
The IMF urged South Africa to implement a fiscal adjustment of 1% of GDP per year for three years to address its debt burden and stimulate growth. The recommendations include wage discipline, SOE reform acceleration, and tighter procurement control. These comments preceded Finance Minister Enoch Godongwana’s 2025 Budget presentation, now postponed to March 12. The revised budget is expected to prioritize infrastructure investment and fiscal consolidation, with Government of National Unity (GNU) partners hoping to find common ground on a proposed 2% VAT hike to fund grants, wages, and infrastructure spending.
President Cyril Ramaphosa reaffirmed his administration’s commitment to infrastructure-led economic recovery. His weekly newsletter emphasized that both state and private sector investment would be key in driving growth, job creation, and structural reforms. However, he also noted the need for consistent infrastructure maintenance to achieve long-term economic targets.
In a positive development, the Financial Action Task Force (FATF) announced that South Africa may be eligible to exit the grey list by October, having addressed 20 of the 22 required action items. This progress is a key step in restoring investor confidence and improving financial market conditions.