Godongwana’s D-Day is here

South Africa’s Finance Minister is under pressure to chart an economic course that navigates the hazards unleashed by Donald Trump’s trade war.

As Enoch Godongwana prepares to deliver his annual budget speech on Wednesday, investors will also look to him to expedite reforms needed to revive flagging economic growth while stabilizing the nation’s precarious finances.

Those steps are needed to ward off the potential threats posed by the US’s protectionist policies, including higher inflation and lower exports.

Added to that are the concerns that Trump’s recent false claims about South Africa’s land policy, and consequent withdrawal of aid, signals potential changes to the country’s preferential-trade access to the world’s biggest economy.

“The rise in protectionism and disruption to global trade, including due to tariffs or retaliatory measures, represent downside risks to the global economy and to growth in South Africa,” Tidiane Kinda, the International Monetary Fund’s resident representative to South Africa, said in an interview.

“Accelerating the implementation of reforms is critical to potentially help offset the more pronounced external headwinds.”

Trump’s decision to freeze aid to South Africa because of its new land-expropriation laws and “aggressive positions towards the United States and its allies,” including accusing Israel of genocide in the International Court of Justice, has led to a R7.5 billion shortfall for its longstanding HIV programs.

“The US impact on the budget may cause some reshuffling of budgetary items in order to make space or compensation of the withdrawal of USAID,” Frank Blackmore, lead economist at KPMG South Africa, said.

“Policy is haunted by the Trump administration; it is clear that President Trump wants to be consequential.” 

These pressures could make it difficult for the National Treasury to achieve its debt stabilization goal by the end of March 2026.

The median estimate of eight economists in a Bloomberg survey is for debt to gross domestic product to peak in 2026-27 at 76.3% and for Treasury to miss its consolidated budget deficit targets over the next three years.

The country’s path toward fiscal consolidation is now in the context of “a very uncertain world” said Arthur Kamp, chief economist at Sanlam Investments.

“What’s more important is what we are putting in place to sort of deal with these uncertainties, and that’s far more difficult.”

Even so, markets are taking the budget in their stride. The rand was steady on Tuesday, and the yield on benchmark 2035 government bonds dropped.

One-week implied volatility for the rand versus the dollar was at the lowest level since December, suggesting traders aren’t expecting wider swings in the currency.

The IMF recommends speeding up reforms at state-owned enterprises, including power utility Eskom and rail-and-port operator Transnet, arguing that this would have a powerful positive effect on the entire economy.

It foresees the economy growing 1.5% in 2025, compared with its 1.1% forecast for last year.  

Most economists polled by Bloomberg expect Godongwana to allocate Transnet funds with strict conditions.

For Transnet, “the government will likely provide some government guarantees to support the entity’s borrowing – and then steer it toward blended finance options — which would include other funding sources too,” said Elna Moolman, head of South Africa macroeconomic research at Standard Bank. 

Godongwana is expected to unveil more details on funding models to encourage the private sector to invest in infrastructure projects.

Earlier this month, President Cyril Ramaphosa said the nation will spend more than 940 billion rand on infrastructure over the next three years and is engaging financial institutions and investors to unlock a further 100 billion rand in funding.