Time to own up over Eskom’s green deal
Tbecame hree years clear ago SA it’ s economic situation had deteriorated and would get worse because the government had nothing to offer except the same dish of structural reforms and austerity it has served with different spices each year.
At a Black Business Council conference I called for emergency measures: the suspension of the inflation target until the economy had an acceptable growth rate, an interest rate cut of 200 basis points and a R500bn fiscal stimulus for infrastructure.
The stimulus was equivalent to about 3% of GDP a year. It could be financed with only a modest increase in sovereign debt. The Keynesian multiplier would ensure that each rand added almost two times the initial expenditure to GDP. The stimulus would pay for itself. To lance fears about state capture, a temporary public-private agency would evaluate bids for shovel-ready projects.
Today, Cyril Ramaphosa and Tito Mboweni are still serving up the same dish. The economy has experienced five years of declining GDP per capita. Yet there is still no plan to get the country out of its worst postapartheid economic crisis.
The medium-term budget policy statement at the end of October is set to be a shocker. The Treasury is preparing a new chief restructuring officer (CRO) Bill. It will transfer R250bn of Eskom’s debt to a special purpose vehicle (SPV) in the CRO office.
If one adds expected budget revenue shortfalls and extra allocations to Eskom, the debt to GDP ratio could soar to above 65% of GDP, from 58% at endJune, without a single new investment into the economy.
The Treasury and Eskom will share interest payments on the R250bn debt. A related deal will lead to the CRO office raising concessionary loans of R160bn from international climate financiers in exchange for commitments to accelerate the decommissioning of power stations that produce 70% of the country’s electricity.
It is time for the government to become transparent about a transaction that will have huge implications for all South Africans. Eskom is a macroeconomic policy issue that has implications for growth, investment, employment, sovereign debt and the budget. Such decisions cannot be made behind closed doors.
It is difficult to understand the logic of the SPV. It is no different from shifting the Eskom debt to the sovereign balance sheet. There is no way of getting around this like Greece did with help from Goldman Sachs.
If the debt is being taken off its balance sheet, why is Eskom expected to share interest payments? How is this different from the status quo? Eskom cannot afford to pay interest on more than R200bn of debt.
What is the point of scoring two or three hundred basis points on a loan that exposes SA, which has a low level of foreign currency debt, to potentially huge exchange rate risks and whose terms allegedly include destroying Eskom and the livelihoods of hundreds of thousands of people in affected mining communities? What gives climate financiers the right to determine a sovereign nation’s economic policies?
There are many other ways to deal with the Eskom debt that would have less of an effect on the sovereign debt to GDP ratio
— monetary financing by the SA Reserve Bank; restructuring the SA Inc balance sheet by reducing funding levels in the Government Employees Pension Fund, writing off Eskom’s R90bn debt to the Public Investment Corporation and tapping into the R138bn surplus at the Unemployment Insurance Fund.
But the solution has to be part of a plan to reverse economic decline. There is a fast-closing window of opportunity for the government to change course and introduce emergency macroeconomic policy measures.
The alternative — austerity measures of R326bn and lower GDP growth — will result in the economy starting to unravel at a faster rate within 18 months: the beginning of the end.