Latest news with #FrankBlackmore
News24
9 hours ago
- Business
- News24
Interest rates cut to lowest level since 2022
As expected, interest rates were lowered by 25 basis points on Thursday. All six of the SA Reserve Bank's monetary policy committee members voted for the cut. The repo rate was reduced to 7%, the lowest rate since end-2022. Rates have been cut twice this year. The prime rate is now 10.5%. The cut will reduce the monthly repayment on a new R2-million home loan by around R350. Inflation has been mostly below 3% - the minimum target level – since March. SA Reserve Bank Governor Lesetja Kganyago said inflation is expected to increase in coming months, due to in part to higher fuel prices, to 3.3% at the end of the year. South African inflation expectations in the second quarter also reached an almost four-year low. Unions, households and businesses are surveyed by the Bureau for Economic Research on their expectations for inflation over the next two years, which cooled to 4.5%. Expectations about where inflation is heading play a key role in driving prices higher. When workers expect inflation to remain high, they demand higher salary increases, which, in turn, drive prices higher as companies must recoup these higher costs. The SA Reserve Bank has been pushing hard to lower SA's inflation target to 3% (from a band of 3% to 6%). This could keep interest rates higher for longer. KPMG lead economist Frank Blackmore says lowering the target rate to 3% could mean that rates remain unchanged until the end of the year to ensure inflation expectations are aligned with the revised target. While the economy seemed to have picked up in recent months, the Reserve Bank announced that it has downgraded its growth expectation for the year, mainly due to the impact of US trade tariffs. On Friday, US import tariffs on South African goods (excluding some metals) are due to be increased from 10% to 30%. Previously, Kganyago warned this could claim 100 000 jobs in SA's agricultural and vehicle sectors.
The Citizen
18-06-2025
- Business
- The Citizen
What Israel–Iran conflict means for South African economy
The Israel-Iran conflict definitely rattled world markets and might affect the fuel price if it does not stop within the next few days. In a globalised world, what happens on one continent invariably affects the rest of the world, and the conflict between Israel and Iran will probably be no different. Oil prices have become volatile, while investors go for gold as a safe haven, and the rand feels the shock. Frank Blackmore, lead economist at KPMG, says the impact of the conflict between Israel and Iran on global markets, including South Africa, will depend on two key factors. 'Firstly, the scale of the conflict matters. Will it escalate, and will other nations become involved by taking sides? 'If the conflict intensifies beyond what we are currently witnessing, the impact will be far more significant. Secondly, the duration of the conflict also matters. If it is resolved swiftly, the effects on the markets will likely be limited. 'The impact will be felt in two ways. Firstly, through the oil price, and we have already seen an increase since the onset of the conflict. Secondly, through the exchange rate, the rand has already depreciated due to heightened uncertainty, which could lead to inflationary pressure on the local economy and the possibility of interest rates remaining higher for longer.' Blackmore says that given that both oil and the exchange rate affect the impact of the cost of transporting people and goods around the economy, the inflationary impact will be shifted down onto the consumer in the form of higher inflation. The Reserve Bank may then be forced to maintain elevated interest rates for an extended period. ALSO READ: Israel vs Iran: Why you may soon have to pay more for petrol in South Africa Israel-Iran conflict already rattled global markets Sanisha Packirisamy, chief economist at Momentum Investments, says the intensifying sectarian conflict between Israel and Iran, driven by Israel's airstrikes on Iranian nuclear and military facilities and Iran's subsequent missile responses, has indeed rattled global markets. 'Oil prices spiked by more than 10%, with international Brent Crude Oil prices briefly reaching $78 per barrel due to concerns over potential disruptions in the Strait of Hormuz, which is a vital oil corridor for global oil supply. Although prices later stabilised, ongoing tensions could fuel inflation, constraining central banks' flexibility to lower interest rates in 2025, particularly against the backdrop of a protectionist environment marked by higher trade and tariff barriers.' Packirisamy, also points out that equity markets saw initial declines but later recovered as hopes for de-escalation grew, particularly with the US reaffirming its defensive rather than offensive position. 'Safe-haven assets, including gold, US treasuries and the US dollar, gained traction amid rising uncertainty.' ALSO READ: SA economy expected to improve in 2025, but geopolitical risks remain Geopolitical shocks historically have fleeting impact She says historically, geopolitical shocks tend to have fleeting market impact unless they significantly impair economic growth or trigger stagflation. 'Currently, Iran's oil exports remain mostly unaffected, with their domestic markets largely targeted so far. 'OPEC's spare capacity also has the ability to mitigate global oil supply concerns, given that spare capacity could match any shortfall from Iran. However, prolonged conflict or a blockade of the Strait could drive oil prices significantly higher, threatening global economic stability. 'However, blocking the Strait would prevent their own shipments from getting out and could trigger retaliation from other exporters.' Packirisamy also notes that signs of diplomatic efforts, particularly from the US administration, will be critical to watch, given that a de-escalation in the conflict and a lower risk of spilling over into a broader-based regional conflict are necessary for market normalisation. ALSO READ: Policy Uncertainty Index drops sharply due to various local and global risks Volatile oil prices due to Israel-Iran conflict George Brown, senior economist at Schroders, also notes that oil prices are volatile as the conflict continues. He says similar incidents in recent years amounted to a limited exchange, with Iran's response typically sufficient to demonstrate domestic strength without escalating tensions further. So far, he says, this conflict has proved to be more brutal than other recent escalations. 'Even so, it remains a direct exchange of fire between Iran and Israel with minimal disruption to the oil market. 'The US and several Middle Eastern nations, including those that already condemned the attacks, such as the UAE and Saudi, have no interest in a flare-up of tensions in the region, nor do they wish for disruption of global oil markets. Previously, they intervened to calm situations like this. 'Israel has stated that the operation will continue for 'as many days' as it takes to remove the Iranian threat, but hostilities could settle if Middle Eastern countries and the US mediate a resolution.' Brown says the likelihood of Iran taking any action in the Strait of Hormuz, the often-touted disaster scenario for oil markets, appears remote. 'Such action would impact flows for the other Middle East nations, which are aiming to mediate the situation, while inflicting little harm on Israel.' ALSO READ: Weekly economic wrap: Dramatic jumps for gold and oil Oil facilities not primary target in Israel/Iran conflict Iranian oil supply makes up 3.5% of the global supply. However, Brown says Israel's stated aim has been to impede Iran's nuclear program, consistent with the fact that most strikes so far targeted Iranian nuclear and military facilities. 'While oil production facilities remain a potential target for Israel, it has yet to target them directly, quite possibly restrained by the knowledge that pushing oil prices higher would damage its relationship with its allies, such as the US.' Outside of the conflict, Brown points out that other dynamics in the market continue to point to a global market oil surplus continuing to build in the coming months. 'Although oil prices are sensitive to this type of conflict, as in previous similar events, the initial price rise moderated in the following hours. 'If Brent Crude settled at $75 per barrel, it would imply that G7 energy inflation would be a little above 5% over the next year.' Would this lead to broader inflationary pressure? Brown says probably not. 'Our previous research on the relationship between oil prices and inflation suggests that every 10% rise in oil prices adds just 0.1% to core inflation.' ALSO READ: Trump's ultimatum undermines US credibility If US joins, Israel-Iran conflict could push oil price higher Bianca Botes, director at Citadel Global, warns that tensions are rising in the Middle East, with speculation mounting that the US could soon join the ongoing conflict. 'High-level security meetings and strong public statements have added to the sense of urgency, while both Israel and Iran appear determined to escalate the conflict after several days of hostilities.' She says these developments pushed oil prices higher, as markets brace for the possibility of a broader confrontation. 'Asian stocks have been mixed, while Wall Street closed in the red. Investors are also cautious ahead of a key monetary policy decision from the Fed today. 'Expectations are that rates will remain unchanged, but it is the forward guidance that will play a critical role in market dynamics. The dollar has softened, and emerging market assets are under pressure as traders weigh both geopolitical risks and uncertainty over future US interest rate moves. 'Risk appetite remains subdued as global markets await further clarity.' The rand is under pressure amid risk-off sentiment, trading at R17.98/$, R20.68/€ and R24.17/£, Botes says.
Yahoo
05-06-2025
- Business
- Yahoo
Could Africa establish a critical minerals-backed currency?
Africa holds approximately 30% of the world's critical mineral reserves, making the continent indispensable to green industrialisation and the global energy transition. However, beyond being a major supplier, Africa has yet to establish a strong value chain to reap the benefits of this mineral wealth for itself. Less than 5% of its critical minerals are domestically processed as most value addition occurs abroad, especially in China, which dominates the refining industry. To address this disparity, there are growing calls for collaboration between African countries and their respective mining industries. A report by the African Development Bank (AfDB) and KPMG South Africa proposes a currency convertibility mechanism that would see participating countries pool a pre-agreed percentage of critical minerals to raise investment in energy and other developmental infrastructure. However, persistent and significant barriers stand in the way of a harmonised critical minerals value chain in Africa – including infrastructural deficits, skilled labour shortages, and environmental, social and governance (ESG) concerns. Considering these challenges, Mining Technology examines the currency mechanism and Africa's potential as a self-governing critical minerals powerhouse. Critical minerals are an active market across the continent as global competitors vie to secure ownership over valuable deposits. The main resources are cobalt, copper, graphite, lithium, manganese and nickel. "Africa's critical minerals mining sector is predominantly Chinese-owned as Western ownership tends to concentrate on traditional commodities, creating a dependency that often leads to exploitation,' says Olimpia Pilch, chief strategy officer at the Critical Minerals Africa Group. China has invested billions into African mining operations, with Mining Technology's parent company GlobalData pointing out that such investments have contributed to the 'construction of vital infrastructure and the transfer of essential knowledge to African communities'. Meanwhile, as China's main adversary, the US has been ramping up its interest in the continent's critical minerals. Since March, the US has been in discussions with the Democratic Republic of Congo (DRC) for an exclusive minerals-for-security deal in a bid to counter China's influence and diversify supply. On the European investment front, ESG is top of mind through initiatives such as the €300bn ($341.08bn) Global Gateway programme. However, the European Council on Foreign Relations recently urged the EU to deprioritise its 'strict ESG-first approach' lest it fall behind its competitors in Africa. Despite these moves by global superpowers, Africa has yet to benefit from its own critical minerals on a macroeconomic scale. KPMG South Africa lead economist Frank Blackmore tells Mining Technology that the continent 'is behind on a lot of metrics, mainly with infrastructure', adding that electrification for both public and industrial use is a key area of underdevelopment. 'Infrastructure deficits exist primarily in the form of poor roads, ports and energy supply, which limit access to mineral-rich areas in rural and isolated locations,' says Joshua Charles, CEO of Frontier Dominion, an investment research company focused on Africa. Exacerbating issues is the continent's skilled labour shortage. Research by the Organisation for Economic Co-operation and Development highlights southern and central Africa as regions where deficits in skilled workers have held back mining development and job creation. The majority of respondents to a recent GlobalData survey identified improving infrastructure and securing financing as the most vital challenges for African critical minerals to overcome. This embedded content is not available in your region. A revolution has emerged in recent years as African countries take steps to secure greater control of their critical mineral resources and prioritise local expertise and suppliers. At the EIT RawMaterials Summit in Brussels on 13–15 May, Mining Technology spoke to Aleksandra Cholewa, director of investment and development at Luma Holding and supervisor of the Malta-based investment firm's Rwandan assets. This includes a major tin and tantalum smelter that delivers to European and US markets. 'Africa has always been treated as backup storage for minerals to be shipped elsewhere,' she confirmed. 'We know we need more minerals – and that Africa can be a sustainable source [given] the right tools – but we must also be aware of what kind of value proposition we have for them. Partnerships should be equal.' The AfDB and KPMG South Africa have put forward a mechanism for participating African countries to 'pool together their mineral resources into a commodity basket [which will] serve their interests much better', while also funding long-term energy transition projects. World Resources Institute Africa governance and civil society support lead Patrick James Njakani Okoko explains that in current currency flows critical minerals 'help reduce currency risks by bringing in foreign exchange, as governments in exporting countries such as the DRC often intervene in foreign exchange markets to stabilise local currencies, in turn strengthening their ability to import essential goods'. However, he points out that this model creates a dependency on raw mineral exports and limits local benefits and value addition as a large share of the profits are captured by foreign operators. Indeed, the DRC has been grappling with an oversupply of cobalt and is considering extending its export bans, which began in February. Under the proposed critical minerals basket, also known as African Units of Account, participating countries would pledge a pre-agreed proportion of proven commodity reserves to 'promote regional financial integration, co-operation and cross-border trade'. The report suggests the S&P500 in the US as a point of comparison and the Gold Standard System as a precedent for the basket. However, Pilch contends that 'the model fails to recognise that many critical minerals are not commodities as they lack fungibility'. 'While gold-backed currencies offer stability, critical minerals offer the polar opposite," she adds. The critical minerals selected for inclusion in the mechanism are based on 'future expectation of value', with the report spotlighting copper, cobalt, nickel and lithium. KPMG partner and southern Africa financial services sector head Auguste Claude-Nguetsop adds that 'this is based on the demand, location, size and availability of critical minerals that can then be used as collateral for long-term funding towards Africa's Strategic Development Goals'. As well as mitigating currency risk and facilitating long-term borrowing for clean energy projects powered by critical minerals, another potential outcome of the basket would be the incentivisation of domestic natural resource exploration and extraction. According to Blackmore, the model 'would stimulate mining in Africa. The snowball effect of this would be the harmonisation of mining processes and regulation." Blackmore and Claude-Nguetsop believe that the mechanism and the AfDB's role as a settlement agent would improve transparency around mining investment deals between nations, establishing a more stable business environment. However, there are significant challenges made harder by the continental scale of the mechanism. 'The plan is viable so long as a periodic review takes place by an independent Africa minerals board, coordinated by the AfDB, to ensure that the mineral basket stabilises financing for access to fair financing rates,' asserts Charles. Meanwhile, Cholewa is positive about the plan. 'It is very ambitious and needs more discussion between all stakeholders – governments, the upstream, midstream and downstream, and financial institutions. There is some industry scepticism, but we would be happy to see how we can implement it in the tin and tantalum sector.' Claude-Nguetsop acknowledges that buy-in from political and business leaders will be critical to the success of the mechanism. Meanwhile, Blackmore says that depending on the jurisdiction "there could be operational challenges" related to moving products in and out of some countries, 'but as the mechanism enters economies, there will be operational liberalisation". He confirms to Mining Technology that the AfDB is currently working on piloting the basket, with careful consideration as to which nation will be selected for the study before an attempted expansion across Africa. It is impossible to regard such a change in Africa's critical minerals landscape without also considering the position of China. 'Any critical mineral currency would be left at the mercy of China's whims and could be easily weaponised to ensure African leaders fall in line with Beijing's agenda,' argues Pilch. Increasing action is being taken to reform Africa's mining and resource sectors with the interests of the continent front of mind. If implemented, a critical minerals basket could work alongside established initiatives such as the African Union (AU)'s Africa Mining Vision, which was created in 2009 and advocates for equitable and sustainable mineral resource management. This is in addition to newer frameworks like the AU and AfDB's recently announced Green Minerals Strategy. This highlights four main priorities: advancing mineral development; developing people and technological capability; building mineral value-chains; and promoting mineral stewardship. 'As time goes on, we could see the mechanism open for broader commodities as well, such as precious metals, but the current close ties between critical minerals and Africa's development are what is urgent,' states Blackmore. Looking ahead, Charles believes that 'there will be an increase in investments in Africa's critical minerals due to geopolitical interest, and thus growth in regional collaboration with institutions such as the AfDB, the World Bank, and multilateral partnerships between the US and EU and other regional blocs likely to materialise in the future'. The vast majority (82%) of those polled on the Mining Technology website in April/May stated that Africa would have an "extremely significant" (57%) or "very significant" (25%) role in the global critical minerals race, versus just 7% who said the continent's role would be "not at all significant". Cholewa hopes that there will be more value addition, particularly in the downstream sector. 'Africa is almost ready and there is no reason for it not to be done – but it needs financing, capacity building and education.' 'Africa holds immense potential to maintain and expand its role as a major player in global natural resource markets,' concurs Okoko. 'Through strategic policies, infrastructure development and balanced partnerships, the continent can transform its natural wealth into a driver of inclusive and sustainable development." "Could Africa establish a critical minerals-backed currency? " was originally created and published by Mining Technology, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Sign in to access your portfolio
The Citizen
28-05-2025
- Business
- The Citizen
Reserve Bank could cut repo rate on Thursday, but will it decide to?
Although economists already said in March that they do not expect the repo rate will be cut, inflation is lower than they thought. While some economists believe that the South African Reserve Bank (Sarb) has room to cut the repo rate on Thursday, 29 May, the question remains whether the central bank will cut interest rates. Frank Blackmore, lead economist at KPMG, says there is a difference between what he thinks the Monetary Policy Committee (MPC) of the Sarb will do and what he believes it should do. 'The MPC has made it clear that its decisions are data-dependent, relying on current inflation readings as well as future inflation expectations. The latest inflation rate of 2.8% is well below the midpoint of its target of 4.5% and even below the lower level of the 3% to 6% inflation target range. 'This suggests that inflation expectations for 2025 remain muted, which would typically support a further repo rate cut of potentially by 25 basis points tomorrow.' ALSO READ: Repo rate: Will Reserve Bank cut or err on side of caution? Market volatility subsided, but uncertainty remains – KPMG economist He points out that much of the recent market volatility, driven by uncertainty around tariffs imposed by the US administration, has also subsided. 'Markets have generally returned to levels seen before the tariff announcements earlier in the year. 'However, meanwhile the South African economy is struggling to grow. Initial optimistic forecasts of just under 2% have been revised down to around 1%. In this context, any policy support, such as a repo rate cut, would be welcome. 'But the uncertainty surrounding US tariffs has merely been deferred, allowing time for negotiations with various trading partners. As with the March MPC meeting, we may see another decision to hold rates steady until there is greater clarity regarding the outcome of trade negotiations, tariffs and potential retaliatory measures globally and for South Africa.' Therefore, he says, although the inflationary backdrop is favourable for a reduction in the repo rate, downside risks remain. 'These risks may justify maintaining the current monetary policy stance until trade and geopolitical uncertainties ease or become more predictable. I therefore lean 60:40 in favour of the MPC holding rates in May.' ALSO READ: Inflation for April only 2.8%: Is a repo rate cut coming next week? More favourable inflation outlook creates scope for more rate cuts – Absa economist Miyelani Maluleke, senior economist at Absa, said during a discussion on Absa's quarterly perspectives that the more favourable inflation outlook creates scope for more repo rate cuts. 'Since the start of its easing cycle in September last year, the MPC consistently struck a cautious tone, expressing concern about elevated uncertainty. 'After delivering a cumulative 75 basis point easing, the MPC decided in a 4:2 vote split to keep the repo rate unchanged in March. In our view, developments since the last MPC meeting created more scope for easing the repo rate. 'The inflation outlook has improved, while evidence points to disappointing growth momentum in the first quarter. There is no doubt that uncertainty remains elevated amid the ongoing big global policy shifts. 'However, we view these uncertainties as being more relevant for the timing of the rate cuts rather than arguing for the rate cuts themselves. As a baseline, we have pencilled in a 25 basis points repo rate cut for May, to be followed by another 25 basis points in July. ALSO READ: Reserve Bank cuts repo rate but no promises for rest of 2025 Expect a 25 basis points repo rate cut – Bank of America economist Tatonga Rusike, Sub-Saharan Africa economist at Bank of America, says according to the bank's South African Financial Conditions Indicator, the monetary policy stance largely stayed in neutral territory after the global financial crisis, turned accommodative during Covid and turned tight since 2023. 'We think the monetary policy remains tight because the Sarb's repo rate cuts have been slower than inflation deceleration. Indeed, inflation is below target while the Sarb policy rate is still to get to neutral level. We expect that the Sarb will cut the repo rate twice in 2025, taking the repo rate to 7%.' ALSO READ: Caution wins the day as Reserve Bank decides against repo rate cut Repo rate will remain unchanged – FNB economist Koketso Mano, senior economist at FNB, also says the weak economic environment will weigh on pricing power and sustain space for easier monetary policy and a cut in the repo rate. 'However, a turbulent global environment and risk aversion, especially with local fiscal slippage, will likely keep the Sarb cautious. 'We predict that the repo rate will remain unchanged at the May meeting, but apart from a wait-and-see approach that caters for global uncertainties, there is ample space for the MPC to continue cutting interest rates.' ALSO READ: South Africans losing their homes due to high repo rate MPC will cut repo rate by 25 basis points – Anchor economist Casey Sprake, economist at fund manager Anchor, says from a macroeconomic perspective, the latest inflation data strengthens the case for a cut in the repo rate. 'With core inflation easing, wage growth muted, and consumer demand soft, real interest rates remain in restrictive territory. 'This means that current monetary policy is still exerting a significant dampening effect on the economy. As such, we expect the Sarb to cut the repo rate by 25 basis points at its upcoming MPC meeting. 'The likelihood of a third rate cut later in 2025 remains evenly balanced at this stage, depending on a volatile mix of domestic and international factors, including global commodity prices, currency movements and geopolitical risks.' ALSO READ: Why slow repo rate easing is apt Economist: Repo rate cut likely, but… Sanisha Packirisamy, chief economist at Momentum Investments, says with inflation remaining subdued at the start of the second quarter and signs of a softer inflation outlook due to lower oil prices, a stable currency, weaker economic growth and the scrapping of a Vat hike which triggered Budget 3.0, the Sarb is likely to revise its annual inflation forecast down from 3.6% for 2025. 'The median consensus inflation expectation by Reuters has fallen from 4.1% for 2025 at the start of the year to 3.7% in the April survey. A softer inflation outlook points to an increased likelihood of a repo rate cut tomorrow. 'While the bias is for another repo rate cut thereafter, we note that the MPC will likely maintain a cautious approach to cut the repo rate too far below the neutral level given ongoing global and local risks.' She says with a less pronounced demand shock, the imported deflation from China to South Africa will likely be less. 'The forward-rate agreement curve on 21 May fully priced in one 25 basis point rate cut by year-end, but not in the May meeting. 'This represents a scaling back of expectations from two cuts priced in at the end of April, likely reflecting shifting expectations for US monetary policy, as recession fears eased.' ALSO READ: What lowering the inflation target will mean for SA Repo rate decrease below neutral level of 7.25%? However, she says, a decrease in the repo rate significantly below the Sarb's estimated neutral level of 7.25% would likely require a global recession. 'The recent de-escalation in US-China trade tensions reduces the likelihood of such a scenario and, in turn, the likelihood of the Sarb cutting the repo rate far below neutral, in our view. 'Global fund managers' expectations for a so-called hard landing in the next 12 months pulled back to 26% in Bank of America Merrill Lynch's Fund Manager Survey in May from 49% in April 2025. In addition, the comment from the deputy finance minister that an announcement on the inflation target will be made 'soon' limits the scope for further interest rate cuts.'
The Citizen
21-05-2025
- Business
- The Citizen
Sensible or underwhelming? Economists react to Godongwana's Budget 3.0
After the minister tried to push though VAT increases in his first two budget attempts, Budget 3.0 will still affect citizens' pockets. It was indeed third time lucky for Minister of Finance Enoch Godongwana when he delivered Budget 3.0 in parliament on Wednesday afternoon with the blessing of all the parties in the government of national unity. Frank Blackmore, lead economist at KPMG, says probably the most impressive thing about Budget 3.0 was that we now have a budget at all, although the contents were a bit underwhelming. 'There were many questions about what we are going to do with the R75 billion deficit over the medium-term period with no VAT increase. That was answered by this budget in the form of: some increases in the fuel levy of 15-16 cents per litre; an increase in borrowing with debt going up to 77.4% of gross domestic product (GDP), 1.2% more than in Budget 2.0; no expansion of the zero-rated food basket; reduced expenditure over the Medium Term Expenditure Framework (MTEF) period; the budgets of frontline services such as health and education growing, but by less than the previous budgetary amounts; some additional investment will go to Sars to switch those assets in order to collect more revenue. ALSO READ: Budget 3.0: not austerity budget, but a redistributive budget Not much thought about issues confronting SA Blackmore says it seemed that the budget was focused on these points without dealing with the issues confronting South Africa at this point. 'There were reductions in a lot of areas that were obviously necessary due to lower revenues, except for the public sector wage bill and debt deficit which are increasing.' He says the negatives in Budget 3.0 are: the increased debt and deficit taking more resources away from frontline services and economic growth initiatives, such as the social wage the reduction in the growth of non-interest expenditure no real increase in spending to grow the economy a mention that new tax proposals will come in for 2026 to cover an additional R20 billion gap for the full cost for that period. He did not find much on the positive side but says the public private partnerships and continuing structural reforms, as well as Operation Vulindlela Phase 2 are positive, but are nowhere near large enough to make a meaningful difference at this point to the growth outlook. ALSO READ: Godongwana cuts government spending to offset VAT shortfall Budget 3.0 a more realistic picture of SA's macroeconomic outlook Jee-A van der Linde, senior economist at Oxford Economics Africa, says Treasury's downwardly revised GDP growth projections and higher debt-to-GDP ratios paint a more realistic picture of South Africa's macroeconomic outlook. He says it is a positive takeaway that gross loan debt projections have not increased since March and Treasury still expects debt levels to stabilise, although at a higher level. Gross loan debt is expected to increase from R5.69 trillion in 2024/25 to R6.82 trillion in 2027/28. 'Meanwhile, debt-service cost projections were lowered by R1.8 billion over the MTEF period compared to the March 2025 Budget. South Africa's debt service costs remain alarmingly high at R1.3 trillion over the MTEF and we expect it to continue rising rapidly over the forecast period. 'South Africa's deteriorating debt-to-GDP ratio remains a concern and we continue to maintain that gross government debt will reach 80% of GDP in the near term. The sustainability of South Africa's fiscal outlook hinges on economic growth accelerating in the near term, as fiscal consolidation will prove challenging amid elevated spending pressures.' Was it third time lucky for Godongwana? Van der Linde says Budget 3.0 is more sensible and depicts a stark picture of South Africa's finances. 'Markets will welcome Treasury's commitment to fiscal consolidation. 'While not of its own making, Treasury's credibility has been unduly dented as a result of the budget wrangling. Political parties have been climbing over each other trying to claim credit for Treasury reversing course on the tax proposals that scuppered the first and second budget attempts.' ALSO READ: Budget 3.0: Opposition parties clash over impact on poor Very high execution risk Patrick Buthelezi, economist at Sanlam Investments, says the execution risk for the budget remains very high as many spending pressures require funding, such as closing the gap created by a freeze on PEPFAR support, political party funding leading up to the local government elections and national social dialogue. 'Given the projected economic growth outlook, the pressure on the fiscus can be expected to continue. The finance minister hinted that revenue-raising measures might be introduced in the 2026 budget. The GNU needs to reach consensus on viable revenue-raising proposals, including expenditure cuts.' Tertia Jacobs, treasury economist and fixed income specialist at Investec, says for her a key takeaway is that the GNU and Treasury continue to stick to fiscal consolidation. 'Any new increases in spending must be financed by higher tax increases and the new spending increases are allocated between infrastructure and frontline services as well as Sars getting a bit more money because they will become more important in widening the tax base in coming years. 'All in all, the budget is probably as good as we can get in the context of sluggish growth, but these are indications that the GNU and the ANC are willing to work together. ALSO READ: Budget 3.0: Alcohol and cigarette prices will increase — here's by how much Commitment to stabilising government debt Dr Elna Moolman, head of South Africa macroeconomic research at the Standard Bank Group, says in line with their long-standing expectation, all three budgets this year remained committed to stabilising government's debt-GDP ratio. 'The negative revenue impact of backtracking on the VAT increases as well as the weaker economic growth trajectory is counteracted, as we expected, by a combination of revenue and spending adjustments. 'The confirmation of government's commitment to fiscal consolidation, with the debt-GDP ratio peaking this year and bond issuance kept unchanged, should provide some reassurance to financial markets, as we expected. 'The macroeconomic policy reviews and fiscal reforms, alongside ongoing traction with Operation Vulindlela's growth-supportive reforms, also underpin likely fiscal and growth improvements in the medium term. 'However, entrenched investor concerns about adverse fiscal and growth risks will not be negated and notwithstanding the imminent peak in the debt-GDP ratio and unchanged nominal debt trajectory, investors will emphasise yet another increase in the debt-GDP trajectory that will limit the potential positive financial market impact from any positive fiscal developments.'
