Godongwana raises the alarm about petrol and diesel prices in South Africa

Sustained higher oil prices resulting from conflict in the Middle East may fuel inflation in South Africa, though the buffers built by the government should help keep its debt-consolidation plans on track, the finance minister said.

The price of Brent crude has jumped almost 16% this week as shipping flows ground to a halt in the Strait of Hormuz, through which a fifth of the world’s oil transits. 

“South Africa is a price taker” when it comes to fuel, Enoch Godongwana said in an interview on Bloomberg Television in London on Thursday.

Rising prices “will have an inflationary impact for us. So the war is worrying,” especially if the war drags on for more than four weeks, he said.

His comments came eight days after he presented a budget that showed the ratio of national debt to gross domestic product stabilizing for the first time in almost two decades and projected a slightly narrower deficit than previously forecast.

The improved fiscal framework added to growing optimism that Africa’s biggest economy has finally turned the corner after years in the doldrums. 

The stabilization of the debt ratio and plans to reduce it in coming years were expected to free up resources to invest in new infrastructure, grow the economy and tackle one of the world’s highest unemployment rates.

But the turmoil unleashed by US and Israeli strikes on Iran that began at the weekend could force South Africa to rethink its budgetary projections, with trade and global growth likely to be impacted.

“We didn’t pencil the war in,” when the budget was drafted, Godongwana said, adding that the government remains committed to structural reforms. “Of course, we’ll have to take into account the nature of the shocks.”

South Africa’s National Treasury currently borrows 85% of the funds it needs in rand and the balance in other currencies, a ratio the minister expects to be maintained.

Investors appear to be “maintaining a positive outlook for South Africa,” he said. “Analysts are telling us that we are likely to see an up-tick in terms of commodity demand and prices and we are a commodity producer. We suspect we will also benefit from that.”