Analysis
South Africa’s 2025 Budget: FX Risks and How Businesses Should Respond
As South Africa passes its 2025 Budget amid coalition friction and fiscal strain, businesses are facing rising FX risk and economic uncertainty. VAT changes, debt pressure, and political instability are already shaking investor confidence and driving rand volatility.
Forward-thinking businesses are reassessing their currency exposure, adapting treasury strategies, and building resilience in response. From scenario planning to multi-currency pricing, the right moves now can turn volatility into strategic advantage
-
Nicky Strydom
- 4 minutes read
South Africa’s 2025 Budget wasn’t simply fiscal policy—it was a political litmus test. Delivered amid economic strain and coalition discord, it underscores the urgent need for strategic currency management and a proactive foreign exchange strategy as markets digest a fragile recovery and rising volatility.
The implications go far beyond a VAT increase or debt servicing line items. For businesses exposed to the rand (ZAR), the real story lies in what the budget reveals: a country in transition, a government grappling with structural challenges, and an economy where political dynamics are becoming as important to exchange rate management as traditional monetary policy.
As experts in foreign exchange risk management, the team at CC Currencies brings clarity to what the budget means for CFOs, treasury leads, and SMEs.
Here’s what you need to know—and how to respond.
A Budget Under Pressure: What Happened?
The 2025 Budget landed amid significant political and economic headwinds. It was the first time in democratic South Africa that a national budget was delayed before even being presented, reflecting unprecedented internal disagreement within the coalition. The delay was widely seen as a reflection of growing instability within the Government of National Unity (GNU), where friction between key parties, particularly over proposed tax measures, exposed serious challenges to cohesive fiscal planning.
Here are the key developments:
Proposed VAT Increase: The government proposed a phased VAT increase, rising from 15% to 15.5% in May 2025 and then to 16% in April 2026. While intended to boost revenue, the increase was contentious and subject to political negotiation. Parliament initially requested alternative revenue measures and spending cuts.
[Update – 24 April 2025:] The VAT increase has since been withdrawn following political pushback and coalition pressure. The rate will remain at 15%, leaving a significant shortfall in the fiscal framework. The Finance Ministry has committed to revising the budget without further increasing debt.
No Inflation Adjustment on Income Tax Brackets: Personal income taxes are effectively rising due to fiscal drag—further dampening household demand.
Debt Servicing at Record Levels: South Africa now spends 22% of its revenue on debt interest. As Alan Mukoki, CEO of the South African Chamber of Commerce and Industry, put it:
“You’re spending 22 cents of every rand just to service debt.”Persistent Low Growth: Despite maintaining a primary surplus, the South African economy’s sluggish growth trajectory—projected at 1.9% in 2025 and averaging 1.8% through 2027—continues to challenge fiscal consolidation efforts.
Political Gridlock: The GNU has been marked by a lack of coordination, policy uncertainty, and infighting over ministerial appointments and transformation agendas. The DA and ANC have conflicting visions for the country’s economic direction.
Investor Uncertainty: Credit rating agencies like Fitch have expressed doubts about the government’s ability to stabilise debt. Meanwhile, Moody’s has warned of the risks if the GNU cannot deliver fiscal reforms.
Budget Vote Outcome
On 2 April 2025, the National Assembly passed the amended budget by a narrow margin, reflecting continued divisions within the coalition. While the approval provides short-term clarity, tensions within the GNU remain high, raising questions about long-term policy stability.
Why This Budget Signals Deeper Risk
The real risk isn’t just in the numbers—it’s in the system.
Economist Natale Labia (Lionhead Capital) highlighted the broader context, noting that South Africa is entering uncharted political territory.
“We’ve moved from a one-party democratic setup to a coalition-led parliamentary democracy where power no longer sits exclusively with the ANC. And with that comes instability.” ~ Natale Labia, Partner & Chief Economist, Lionhead Capital
Several key structural gaps have now come into sharper focus, including:
- Coalition parties lack a unified vision, particularly on transformation and structural reform
- Key economic decisions, such as VAT increases, are now open to contestation
- The GNU lacks an integrated economic roadmap, making it difficult for markets to anticipate policy direction
The impact on currency markets began as early as February, when the budget speech was postponed due to coalition disagreements—most notably, the DA’s opposition to the proposed VAT increase. The delay triggered a dip in the rand, reflecting investor concern over macroeconomic risks and political friction. Markets remain jittery—and for good reason.
The manner in which the budget was passed has, in fact, intensified concerns. Market participants are now grappling with the implications of the governing coalition’s instability and legal challenges to the fiscal framework rather than feeling reassured by its approval.
“You can’t keep pulling rabbits out of the hat—selling reserves last year, hiking VAT this year. Something has to give.” ~ Natale Labia, Partner & Chief Economist, Lionhead Capital
In this podcast episode, Sharon Constançon, the Chief FX Strategist at CC Currencies, delves into the complexities of Forex management in the South African agricultural sector. She highlights the logistical challenges, market volatility, and weather-related risks that impact farmers and exporters.
What This Means for Businesses with South African Exposure
This budget signals a period of heightened ZAR volatility for importers, exporters, and multinationals operating in the region.
Key Risks:
- ZAR Depreciation: If the revised budget or the coalition’s cohesion fails to inspire confidence, expect further ZAR weakening.
- Inflation-Driven Cost Pressures: While the proposed VAT hike has been withdrawn, consumer strain from prior inflation and stagnant wages remains a key concern for pricing strategies.
- Delayed Investment Decisions: Political and policy unpredictability is prompting caution among foreign investors.
- Sovereign Risk Premium: Any credit rating downgrade could raise borrowing costs and suppress capital inflows.
Strategic Opportunities:
- Hedging volatility allows firms to lock in prices and protect margins.
- Deploying a range of hedging strategies—such as forward contracts and other tailored instruments—can help manage cash flow visibility and shield against adverse FX movements.
- Proactive pricing strategies can offer a competitive edge to firms prepared for ZAR movement.
How to Respond: CC Currencies’ Risk Strategy Playbook
Here’s what we recommend:
Conduct a Full FX Exposure Audit: Review where and how your business is exposed to ZAR. Look beyond obvious cross-border trades—contracts, vendor agreements, and pricing policies all carry hidden exposure.
Revise Scenario Planning Based on Budget Approval: The amended budget was approved by the National Assembly in early April, but it narrowly passed despite divisions within the coalition. While the outcome provides temporary fiscal direction, it doesn’t eliminate uncertainty. Businesses should continue to model ZAR scenarios based on evolving political dynamics, especially as tensions within the GNU may still impact future policy, spending implementation, and investor sentiment.
Review and Update Hedging Policies: Move from annual to quarterly hedging policy reviews. In fast-moving markets, long lead times reduce your ability to respond effectively.
Introduce Multi-Currency Pricing Models: If you operate in multiple markets, explore multi-currency invoicing to mitigate localised FX pressure—especially if your international business operations span multiple emerging economies.
Monitor Macro and Political Signals: The currency continues to respond sharply to political developments as much as to monetary policy. Coalition fractures, policy delays, and leadership uncertainty have become key drivers of ZAR volatility. Businesses must track key GNU dynamics, transformation debates, and Treasury signals. Incorporating this intelligence into your treasury planning ensures a more resilient FX strategy.
CC Currencies equips clients with clear, practical FX playbooks to navigate volatile environments like these—where politics, currency, and strategy collide.
A Final Word: Volatility as a Catalyst
South Africa stands at a political and fiscal crossroads, and the 2025 Budget has done little to resolve this. If anything, the surrounding events have intensified uncertainty. Legal challenges, coalition tension, and potential leadership shifts are all contributing to renewed volatility. For businesses, that means preparing for more instability, not less.
The withdrawal of the VAT hike underscores how fragile the coalition remains—and how quickly revenue assumptions can unravel under political pressure.
For FX leads, treasury managers, CFOs, and entrepreneurs, strategic currency planning is now essential. Done well, it can protect value, stabilise operations, and even create a competitive advantage in turbulent markets.
Article update – 25 April 2025: This article was updated to reflect that the proposed VAT increase outlined in South Africa’s 2025 Budget has been officially withdrawn as of 24 April 2025. The VAT rate will remain at 15%, following political opposition and coalition negotiations. References to the VAT hike have been revised to maintain accuracy.
CC Currencies helps businesses bring structure, foresight, and confidence to managing risk—even when the policy landscape keeps shifting.
Don’t let currency volatility erode your profits
Want to stress-test your FX strategy in light of South Africa’s 2025 Budget?
Schedule a consultation with our FX Risk experts today.
