Budget 2025 delay sees mild market reaction so far

While there was general surprise at the Budget being postponed at the last minute today, the rand has seen little impact so far at R18.45/USD this morning and now is at R18.56/USD,  and there has also been little change against the euro and UK pound. 

Markets are still weighing up the implications of the delay in the Budget, with the reported issue revolving around a proposed 2% VAT increase, which some parties were not in agreement with, risking today’s budget not being passed by Parliament. 

A mild reaction is evident in the bond market, with some worries likely on how the revenue shortfall will be funded now. Higher borrowings weaken bonds and there has been some loss in value of the benchmark (ten year) bond so far today.

We do not expect much reaction from the rating agencies. S&P, one of the three key rating agencies, (with the other two Fitch and Moody’s) put South Africa on a positive outlook (indicating the potential for an upgrade from BB-) in November last year.

In its latest review of SA, S&P removed the large political risk component it previously had for SA on the peaceful, stable National Elections last year and the formation of the Government of National Unity (GNU), upgrading the credit outlook to positive.

The rationale for the outlook upgrade (not a rating upgrade itself) was “(t)he positive outlook reflects our view that increased political stability following the May general elections and impetus for reform could boost private investment and GDP growth.”

The JSE has also seen a modest reaction in line with other market indicators and had lost half a percent at the time of writing. International market sentiment is on the US, which sees the Republican’s Budget plan unveiled on Thursday night.

Politics, and various economic and other policies of political parties, have become noisy around the world, not just in SA. We expect markets will continue digesting the implications of the delay in SA’s budget but not see this as the GNU falling apart.

The new date for South Africa’s Budget is 12th of March and we expect it will go ahead without a hitch, with the GNU using the time to thrash out agreement around state finances, in a solid working spirit.