South Africa’s Deputy Finance Minister, David Masondo, expressed optimism this week that the upcoming national budget will secure approval from lawmakers, following the scrapping of two previous drafts due to disputes within the governing coalition. Speaking at an event in Cape Town, Masondo declared, “I’m very confident that we’re not going to have budget 4.0,” a sentiment echoed by ongoing discussions between the National Treasury, the Democratic Alliance (DA)—the coalition’s second-largest member—and other political parties.
Finance Minister Enoch Godongwana is set to present the third version of the budget on May 21. The earlier drafts met with significant pushback after the DA strongly objected to proposals for a hike in value-added tax (VAT). These objections raised fears among investors about potential fallout in the coalition, with speculation that the DA might withdraw and left-wing groups, such as the Economic Freedom Fighters, could exploit the political vacuum to advance their own agendas.
Following the withdrawal of the proposed tax increase on April 24, the governing alliance remains intact. According to Masondo, the latest iteration of the budget has drawn valuable lessons from previous negotiations to foster compromise among coalition partners. DA member and Minister of Public Works and Infrastructure, Dean McPherson, supported this viewpoint, asserting, “I’m fairly confident that there will be agreement on budget 3.”
He continued, “I think the political leaders have done a lot of work to bring people close together. I also think the lessons that have been learned—there’s got to be compromise, there’s got to be give and take.” As he spoke at an event in Bothaville, located in the central Free State province, McPherson expressed a sense of optimism that had previously eluded him.
The urgency surrounding the budget process cannot be overstated, as lawmakers and the Treasury face a deadline to finalise the budget by the end of July. Following Godongwana’s presentation, parliamentary committees must adopt reports on legislation that require approval from the National Assembly.
Notably, President Cyril Ramaphosa will participate in the budget presentation remotely, as he is currently in the United States for discussions with his American counterpart, Donald Trump.
In addition to discussions about the budget, Masondo shed light on efforts between the Treasury and the central bank to establish an inflation framework tailored to South Africa’s unique economic landscape. An announcement regarding this framework is anticipated shortly.
The markets responded positively to Masondo’s comments, with the rand appreciating by as much as 1.1% against the dollar. The yield on benchmark 2035 government bonds fell seven basis points to 10.48%, marking the lowest closing level since early March.
The central bank’s current inflation-target band is set between 3% and 6%. However, Governor Lesetja Kganyago has indicated that adopting a single-point target of 3% could align South Africa more closely with its global peers, potentially paving the way for lower interest rates in the future.