South African Finance Minister Enoch Godongwana rejected calls to resign after reversing a proposed value-added tax (VAT) increase from 15% to 15.5%, which had threatened the stability of the Government of National Unity (GNU). The U-turn followed opposition from various political parties both within and outside of the coalition. Godongwana, speaking at the IMF and World Bank Spring Meetings, defended his role in proposing revenue measures as constitutional, denying any misconduct. The scrapped tax hike leaves a R75 billion budget gap, forcing the government to reassess spending priorities. Godongwana noted that some expenditure items may not be funded but emphasised that the reversal enables rational budget discussions without “red lines”. The decision aims to preserve the GNU, which investors hope will implement much-needed economic and fiscal reforms.

For the time being, all of the parties who had any kind of dealings with the ANC concerning the budget are claiming credit over the scrapped VAT hike, much to the ire of each other. Everyone wants some credit, whether deserved or not, and in the meantime investors wait for answers concerning how the government will fund itself for the upcoming fiscal year. South Africa thus finds itself in a position where it lacks a fiscal framework, and is uncertain about funding sources to address the budget shortfall, while the politicians are celebrating the VAT hike reversal, causing mutual discontent. Notwithstanding the fact that the GNU appears to be in a much better place than it was just a few weeks ago, investors will still be concerned with the uncertainty surrounding South Africa’s fiscal outlook.

ZAR Markets

The ZAR has retreated sharply after touching R18.5000/$ on Wednesday, currently trading closer to R18.9000/$ with momentum very much on the side of the bears. It is also noteworthy that the ZAR is underperforming its EM peers at a time when broader risk appetite is improving due to signs of a de-escalation of the global trade war and intimations by the Fed that it may cut rates more aggressively in the months ahead. This suggests some idiosyncratic risk is being priced into the ZAR, likely owing to the brief return of load-shedding and, perhaps more importantly, continued uncertainty over SA’s fiscal framework now that the VAT hike has been scrapped. Of course, the fact that the GNU seems on a more solid footing is positive, meaning the market could reverse recent losses very quickly should any progress towards a new budget be made in the days ahead. Nevertheless, in the meantime the ZAR remains on the back foot, with sellers eyeing support at R18.8900/$ and then again just north of R19.0000/$.

Global FX Markets

The U.S. dollar strengthened, with the Bloomberg Dollar Spot Index up 0.2%, poised for its first weekly gain in four weeks, driven by a more conciliatory tone from the Trump administration in trade talks with major partners. Treasury Secretary Scott Bessent indicated a potential trade “agreement of understanding” with South Korea as early as next week and noted ongoing discussions with China, despite Beijing’s denial. Japan’s yen weakened after Finance Minister Katsunobu Kato confirmed that specific foreign-exchange targets were not discussed with Bessent, though he urged the U.S. to reconsider tariffs. Market sentiment reflected cautious optimism, with reduced tariff concerns and a shift away from hardline trade rhetoric, though scepticism persists due to lack of concrete progress on U.S.-China trade tensions. Currency movements included USD/JPY rising 0.2% to 142.98, EUR/USD dropping 0.4% to 1.1350, AUD/USD falling 0.1% to 0.6402, and GBP/USD declining 0.3% to 1.3300.