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Finance Minister Enoch Godongwana on Wednesday announced a new inflation target of 3%, with a 1 percentage point tolerance band.

The decision, made in agreement with South African Reserve Bank (SARB) Governor Lesetja Kganyago, follows consultations with President Cyril Ramaphosa and Cabinet.

It was confirmed alongside the tabling of the 2025 Medium-Term Budget Policy Statement (MTBPS) in Parliament on Wednesday.

“Today I announce a new inflation target for South Africa of 3 per cent with a 1 percentage point tolerance band,” Godongwana told lawmakers in Cape Town.

“This decision follows agreement between the Governor of the South African Reserve Bank and my consultations with the President and Cabinet. The 1 percentage point band provides flexibility to accommodate any unexpected inflationary shocks. This is in line with South Africa’s approach to inflation targeting, which has always been a flexible one, looking beyond short-run deviations in inflation.”

In a joint statement, the National Treasury and the SARB said the new band “provides flexibility to accommodate unexpected inflationary shocks,” consistent with South Africa’s tradition of flexible inflation targeting.

The move was sparked by Reserve Bank Lesetja Kganyago expressing a preference for a lower target band of 3 %. This is after using the midpoint of the inflation target band of 4,5 % for the past 18 months or so.

The decision also follows a comprehensive review of the inflation-targeting framework by Treasury and the SARB through the Macroeconomic Standing Committee, which assessed international best practices and the appropriate level for South Africa’s target.

The new target replaces the previous 3–6% range and will be phased in over the next two years.

Authorities say the lower target is expected to gradually reduce inflation expectations, paving the way for lower interest rates, stronger household spending, and increased business investment, ultimately supporting growth and job creation.

“While the Treasury acknowledged that the short-term costs include slower nominal GDP and revenue growth, it emphasized that long-term benefits outweigh these challenges, as lower inflation enhances stability and investor confidence,” said Treasury and SARB in the joint statement.

“The SARB will continue to pursue the target on a continuous basis and communicate any deviations, while maintaining close coordination with the Treasury amid ongoing global and domestic economic pressures.”

Earlier, Kganyago said at a press briefing held with Godongwana in Cape Town: “A lower inflation target will help in protecting the value of money,”

Kganaygo added that the SARB’s Quarterly Projection Model (QPM) forecast five 25 basis points cuts over the next two years, but he emphasised that the central bank “did not outsource its decisions to a model.”

Godongwana, who earlier in the process attempted to assert his authority in setting the new target, further suggested that South Africa is already reaping the benefits of lower inflation and lower interest rates.

He also noted that debt service costs in the current year will be R4.8 billion lower than estimated in the 2025 Budget, supported by lower interest rates, lower inflation and a stronger currency.

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Finance Minister Enoch Godongwana will deliver the Medium-Term Budget Policy Statement (MTBPS) on Wednesday, the second under the Government of National Unity (GNU), but the first fully owned by the coalition.

This follows the drama surrounding this year’s budget, which was delayed until May after a court challenge by opposition parties, including the Economic Freedom Fighters (EFF), over the proposed VAT increase.

Following South Africa’s exit from the Financial Action Task Force (FATF) Grey List, South Africa must now target the seemingly more difficult task of exiting junk status.

Two months ago, Fitch affirmed South Africa’s long-term foreign and local currency debt ratings at ‘BB-’ and maintained a stable outlook.

According to Fitch, South Africa’s credit rating is constrained by several factors, including low real GDP growth, high poverty and inequality levels, a high and rising government debt-to-GDP ratio among other.

“However, the ratings are supported by a favourable government debt structure with long maturities and mostly local-currency-denominated, strong institutions and a credible monetary policy framework,” Treasury said at the time.

Godongwana will now have to show that he has regained full control of the budgeting process and enjoys the buy in of the ten parties in the GNU.

One way to achieve this is to avoid any major baseline spending adjustment, unless its boost areas of spending such as education, health and social welfare.

However, given South Africa’s ongoing fiscal consolidation path since the COVID-19 pandemic, such moves are highly unlikely and would likely face strong resistance from the pro-market Democratic Alliance (DA), a major GNU partner.

The first issue that Godongwana will address is economic growth.

According to the Nedbank Economic Unit, “treasury will likely reduce its GDP growth forecast for 2025 slightly due to shrinking fixed investment and lower exports in the first half of the year.”

The decline in fixed investment should be a major worry for government.

Nedbank goes on to note: “For the next three years, we expect Treasury will reflect an upward trajectory as subdued inflation and lower interest rates sustain consumer spending and easing energy and logistical constraints enable a recovery in fixed investment, offsetting the continued, and potentially deepening, drag from net exports.”

A piece of good news expected to come from the budget is higher tax collection than at the time of the main budget.

The boost is due slightly faster growth in domestic demand, elevated gold and platinum prices, with the former reaching $4 000 an ounce, as well as the ever-efficient tax collection machine that is the South African Revenue Service (SARS).

Nedbank expects revenue to be R60 billion higher and R200 billion higher over the medium term.

A moderate growth in spending following the delayed budget but also low inflation in the years ahead means that South Africa can expect a narrower deficit.

A major issue Godongwana will have to address is that of infrastructure spending.

The government plans to invest R1 trillion in infrastructure over the next three years.

But too often, especially with government owned infrastructure projects, the figures sound like ambitious targets that are not followed through.

Godongwana must disclose how much of planned spending of the past three years materialised.

Actual, not planned, spending is what causes growth and creates job.

Godongwana will then have to respond to a myriad of issues, such as what will happen to the Social Distress Relief Grant (SDRG) after March next year.

The higher-than-expected tax revenue may create room to extend the grant, which was introduced during COVID-19 but has since grown to be an entrenched part of the social fabric due to high unemployment and poverty.

Lastly, the minister is expected to provide an update on discussion with the South African Reserve Bank (SARB) around a new inflation target.

Godongwana will most likely give an update on Treasury’s thinking, since the Reserve Bank’s stance is well known, with the final announcement only expected in next year’s budget, hopefully in February, when South Africa will mark 26 years since the adoption of the inflation target.

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Finance Minister Enoch Godongwana has appointed Lebogang Paul Mogashoa as the Pension Funds Adjudicator (PFA) on a three-year term, effective 8 December.

The appointment was announced on Wednesday.

Mogashoa comes full circle with this appointment, having started his career as a legal intern at the Office of the Pension Fund Adjudicator, where he rose to become Senior Assistant Adjudicator.

The PFA is tasked with resolving disputes between Pension Funds and their members. The PFA also resolves complaints directed to its office in terms of section 211 of the Financial Sector Regulation Act, 2017.

“Mr. Mogashoa’s appointment is subject to the provisions of the PF Act, the PFMA, and applicable governance ordinances. As the PFA, he is mandated to establish and perform the functions of the OPFA and implement the duties as set out in the PF Act,” Treasury said in a statement.

Treasury described the role as “promoting accountability and fairness within the pension funds industry”.

Mogashoa takes over at a time when the Pension Fund industry is undergoing a transformation, most recently through the introduction of the two-pot withdrawal system.

The next big change is seen as the move towards making pension funds and retirement provision compulsory for a broader category of workers.

Mogashoa holds a Bachelor of Laws (LLB) from the University of Limpopo, a Master of Management (Governance and Management) from Wits University, and a Master of Laws (LLM) in Mercantile Law from the University of Pretoria.

He has also undergone an Executive Development Programme at the University of Stellenbosch.

Prior to taking up this role, he was Deputy Principal Executive Officer and Company Secretary of the Eskom Pension and Provident Fund and before that, he was a Senior Corporate Legal Counsel at the Pension Fund MANCO for the South African Tourism Board.

“Throughout his career within the pension funds sector, Mr. Mogashoa has demonstrated strong leadership and strategic insight, particularly in managing high-value litigation,” Treasury said.

“His profound understanding of the pension funds’ legal framework, coupled with his dedication to serving the South African public and all stakeholders, positions him as an ideal candidate to lead the OPFA.”

Mogashoa succeeds Muvhango Lukhaimane, who has concluded a 12-year stint in the role, having been appointed in June 2013 by the late former finance minister Pravin Gordhan.

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The uMkhonto weSizwe Party (MK) has announced former Finance Minister Des van Rooyen as its new Chief Whip.

This marks the fourth appointment to the role in under 15 months since the party entered Parliament.

Van Rooyen replaces Colleen Makhubele, a former speaker of the Johannesburg City Council. Mzwanele Manyi took over from the party’s inaugural whip, Sihle Ngubane.

In a statement, the party said Van Rooyen’s appointment aimed to strengthen the parliamentary caucus while aligning it more strategically with MK’s mission.

According to a statement issued by the MK Women’s League, Van Rooyen’s appointment was expected to instil discipline within the caucus, ensuring MPs toed the line.

The appointment is expected to promote unity, while Van Rooyen is expected to steer the caucus through complex legislative terrain.

The statement describes Van Rooyen as a committed cadre who embodied the values and principles of the MK Party.

“His appointment follows a series of rapid leadership changes within the caucus, making him the fourth Chief Whip since the party entered Parliament 15 months ago.

Dubbed the “Weekend Special,” Van Rooyen served just four days as finance minister in 2015 during Jacob Zuma’s administration.

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The collapse of Germany’s governing coalition and President-elect Donald Trump’s imminent return to the White House are creating new risks for the European Union’s biggest economy, already in a troubling decline.

Germany’s economy has been shrinking for the past two years in the wake of the coronavirus pandemic, war in Ukraine and competition from China. Amid both structural problems at home and global challenges, Chancellor Olaf Scholz’s fractious three-party coalition failed to find a way forward on some key issues.

The situation came to a head Wednesday night when Scholz announced he was firing Finance Minister Christian Lindner. The move effectively meant the collapse of the chancellor’s coalition, which relied on Lindner’s pro-business Free Democratic Party, and left the government bereft of a parliamentary majority.

The coalition’s breakdown followed weeks of internal disputes over how to boost Germany’s ailing economy.

Scholz said he planned to seek a vote of confidence in parliament on Jan. 15, a move that could lead to an early election by the end of March if he loses. Germany’s next regularly scheduled election is not until September. In the meantime, he said he would reach out to opposition leader Friedrich Merz of the center-right Christian Democrats to discuss ideas for strengthening the country’s economy and defense.

But business leaders called Thursday for Scholz to act much more quickly to produce a stable government that is poised to tackle the crisis.

“Every additional day with this federal government is a lost day. We demand new elections as soon as possible,” said Dirk Jandura, president of the German wholesale lobby BGA. “Germany needs an economic turnaround. We have to turn the tide before the waves get too high.”

The coalition’s collapse came in the final hours of a day in which European leaders began to digest the certainty of another Trump presidency, which will have serious implications for European security and the economy.

“At the European level, political instability in Germany is not good news,’’ Antonio Villafranca, vice president of the Italian think tank ISPI, said, noting that a strong Franco-German alliance at the center of the European Union provided an important counterweight during Trump’s first presidency.

Trump has threatened a withdrawal of NATO commitments and a fundamental shift of support for Ukraine in its war with Russia. He has also threatened to slap tariffs of up to 20% on goods from the EU, (and even higher tariffs on goods from China), raising the prospect of a trade war with Washington’s European allies.

Tariffs would deal a sharp blow to German exports and serve another painful setback to an economy long powered by cheap and plentiful energy from Russia and large export markets.

German industry still has not fully recovered from the shocks of the COVID-19 pandemic. Then came Russia’s full-scale invasion of Ukraine in 2022, which led Germany and other Western countries to cut themselves off from Russian gas and oil. Competition from China, including its electric vehicles, has meanwhile forced German and other and European carmakers to lower production and lay off workers.

“Political developments over the last 24 hours have further darkened the already bleak short-term outlook for the German economy,” Carsten Brzeski, global head of macro at Dutch banking firm ING, said.

“A second term in office for Donald Trump in the U.S., with the expected new trade tensions, will hit the German economy, which has 10% of its exports going into the U.S.,” Brzeski said in a note published Thursday. “It doesn’t require a lot of imagination to see U.S. tariffs on European cars sending the German automotive industry into deeper problems.”

Other analysts say Trump’s embrace of tariffs might actually benefit Germany’s automobile industry, whose woes have been one of the reasons for the weakening economy. While Trump has threatened to impose new tariffs on European products, President Joe Biden already placed 100% tariffs on Chinese electric vehicles vehicles, which are flooding the global market.

“Trump can save the German automotive sector” by keeping the tariffs on Chinese EVs, said Daniel Gros, director of the Institute for European Policymaking at Milan’s Bocconi University. “The United States is the only market in the world where German carmakers don’t encounter much competition from China.”

Last month, Volkswagen said it planned to close at least three factories in Germany, the first domestic closures in its 87-year history.

“Some factories will have to close, but perhaps fewer,’’ Gros said.

Scholz’s firing of the finance minister came after his center-left Social Democrats and the environmentalist, left-leaning Greens had discussed plans for massive state investments. The Free Democrats, however, rejected tax increases or changes to Germany’s strict self-imposed limits on running up debt.

Scholz accused Lindner of refusing to find common ground on economic issues, including by publicly calling for what the chancellor said would be tax cuts worth billions for a few top earners while at the same time cutting pensions for all recipients.

“That is not decent, that is not fair,” Scholz said.

Scholz’s Social Democrats, Vice Chancellor Robert Habeck’s Greens and Lindner’s Free Democrats, a party that in recent decades was mostly allied with conservatives, set out in 2021 to form an ambitious, progressive coalition straddling ideological divisions that would modernize Germany.

The government can point to achievements: preventing an energy crunch after Russia cut off its gas supplies to Germany, initiating the modernization of the military and a series of social reforms. But the impression it has left with many Germans is of deepening dysfunction.

“In view of the global political situation and the poor economic development of Germany as a location, we now need a new, capable government with its own parliamentary majority as quickly as possible,” said Siegfried Russwurm, president of the Federation of German Industries.

“With the inauguration of the new U.S. government at the beginning of 2025, uncertainty is expected to increase,” Russwurm said.

AP

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