Finance Minister Enoch Godongwana’s big day

South African Finance Minister Enoch Godongwana’s third attempt to deliver a budget represents his sternest test yet.

The document which he’ll present to lawmakers at 2 p.m. on Wednesday in Cape Town will need to show investors that the government remains committed to fiscal discipline.

It will also need to win buy-in from political parties to get it over the line, after two previous versions were scrapped because of disagreement within the governing coalition over taxes.

At stake are his and the National Treasury’s creditability, as well as confidence in the nation’s political stability.

“Market participants are treating Budget 3.0 as a fiscal and political risk event,” said Goldman Sachs Group Inc.’s Andrew Matheny and Tadas Gedminas.

“If the deficit path remains roughly unchanged and all coalition members signal their intent to support the budget, this would likely ease concerns over political uncertainty — at least in the short term.”

The African National Congress, which formed the so-called government of national unity after losing its outright majority in elections last year, has clashed since February with the Democratic Alliance, the second-biggest party in the GNU, over plans to hike the value-added tax rate, raising doubts about the coalition’s durability.

Tensions escalated last month, when the ANC enlisted the backing of parties that aren’t part of the government to pass a fiscal framework — legislation that underpins the budget — after the DA withheld its support. The DA then filed a lawsuit contesting the adoption of the legislation on procedural grounds.

The Treasury has since backed down and engaged political parties on how to fill a 75 billion-rand ($4.2 billion) budget gap over the next three years caused by scrapping the VAT increase.

John Steenhuisen, who leads the DA, has approved of the process so far. “I think what Minister Godongwana has succeeded in doing is a very good balancing act, and I think we’re going to see a budget that will pass the House quite easily, and we can then get on with the process of building the economy,” he said last week.

Economists expect the new budget to lean heavily on spending cuts to fill the hole.

“Everything is on the chopping block,” Matheny said. “I don’t think there are any holy cows.”

Increased borrowing, although unpalatable, is also a possibility, said people familiar with the budget process, who asked not to be identified because they aren’t authorised to comment. They stressed that any rise in borrowing would be conservative.

In the March version of the budget, Treasury projected that public debt would peak at 76.2% of gross domestic product in the 2025-26 fiscal year. The International Monetary Fund foresees South Africa’s debt-to-GDP ratio increasing to 88.7% by 2030.

“Government may choose a number of options, simultaneously, to plug the gap. It could be risky to raise the borrowing on its own,” because of threats including US President Donald Trump’s trade war, said Sanisha Packirisamy, chief economist at Momentum Investments.

“If these global risks result in a weaker-for-longer growth profile, raising South Africa’s borrowing could raise our relative fiscal risks and leave South Africa in a more vulnerable position.”

Godongwana will also be faced with ensuring that the county’s reform agenda, which the governing coalition pledged to accelerate, is protected even as the economic growth outlook has dimmed since his first stab at presenting a budget back in February.

Economists expect the Treasury to downgrade its 2025 economic growth forecast to 1.3% from 1.9% projected in the budget’s March iteration.

“Infrastructure spending will likely be protected,” said Keabetswe Mojapelo, a macroeconomist at FirstRand Ltd.’s Rand Merchant Bank said.

“The government’s growth strategy is closely tied to infrastructure investment and structural reform, so any cuts in this area would undermine that agenda.”