Business
South Africa Must Prepare for Economic War as US Funding Cuts and Trade Wars Loom
South Africa’s 2025 budget, set to be delivered on March 12, arrives under unprecedented financial pressure. The delay in the budget announcement last month already signaled economic strain, but the global landscape has now shifted drastically.
US President Donald Trump’s decision to pull $1.4 billion (roughly R25 billion) in funding from South Africa has intensified the fiscal crunch. The country also faces the fallout of a global trade war, adding more uncertainty to its economic outlook.
A Budget Under Siege
Business Leadership South Africa (BLSA) CEO Busi Mavuso has warned that the National Treasury must now rethink its entire approach to public spending. “The United States’ global actions are forcing governments everywhere to think in completely new ways,” she said.
The biggest immediate financial hit comes from Washington’s decision to cut its $430 million annual HIV/AIDS funding to South Africa. The country also lost an additional $1 billion in committed funding under the Just Energy Transition initiative when the US pulled out of the deal last week.
Mavuso cautioned that this will force the South African government to step in where external funding once played a critical role. However, doing so without increasing taxes or drastically cutting spending will be an enormous challenge.
Limited Fiscal Options
Finance Minister Enoch Godongwana is already walking a tightrope. The initial budget plan included a VAT increase to 17%, but this was rejected by political partners in the Government of National Unity (GNU).
Now, with additional financial pressure, the government faces two unpopular choices:
- Spending Cuts – Essential services and public programs may need to be scaled back to balance the books.
- New Revenue Sources – Without a VAT increase, alternative tax measures will need to be explored. However, raising personal or corporate taxes risks driving businesses and investment away.
“The fiscal position we are in does not leave us with many options,” Mavuso stressed. “Governments worldwide are being thrust into this environment, and they have to find ways to do more with less.”
What’s Next for South Africa?
The upcoming budget announcement will be a crucial test of the GNU’s ability to navigate this economic storm. Investors and businesses will be watching closely to see if South Africa can find a path forward without further damaging growth prospects.
Mavuso emphasized that government spending should be directed toward projects that stimulate economic activity and attract investment. She believes that South Africa has, in the past, demonstrated resilience in the face of financial turmoil. However, she also warned that taxpayers need to brace for difficult decisions ahead.
“More tax is going to be needed,” she admitted. “Without a VAT increase, the government must find creative ways to cut costs while still keeping the economy stable.”
The 2025 budget will determine whether South Africa can adapt to this new financial reality. With US funding cuts, a looming global trade war, and few available options to raise revenue, the country faces a make-or-break moment.
The world will be watching on March 12 to see how the government responds. Will South Africa rise to the challenge, or will the pressure push the economy deeper into crisis?
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