Aloe darkness my old friend
Faced with the impossible choice between holding the line on fiscal discipline or supporting Eskom, the National Treasury chose to keep the lights on. But the drain on the fiscus of propping up SOES is fast becoming unbearable
The mess at Eskom has blown the budget out of the water, forcing Tito Mboweni to be the first finance minister to breach the National Treasury’s sacrosanct expenditure ceiling — a move that will reignite ratings pressure and disappoint the markets.
It is the first time since the ceiling’s inception in 2012 that SA has been unable to stay within its spending envelope. This is a troubling landmark that raises grave doubts over SA’S ability to return to fiscal sustainability in the absence of severe adjustments to spending or taxation.
The bottom line is that economists’ worst fears about the fiscal risks posed by stateowned enterprises are coming to fruition — and the Treasury is battling to push back against their demands.
Forced to provide a 10-year bailout of
R150bn — or R23bn annually over the medium term — to the effectively bankrupt utility to keep SA’S lights on, the Treasury was damned if it did and damned if it didn’t. The alternative would have spelt disaster for the economy.
The immediate concern is that Moody’s, the only major ratings agency to still rate SA as investment grade, will junk the country at its next review on March 29. The markets certainly appear to think so, with the rand initially falling by slightly more than 1% against the dollar after the budget was revealed, though it has since recouped some of its losses.
Mboweni has done his utmost to guard against a Moody’s downgrade by insisting that, in return for the handout, Eskom will effectively be put under “curatorship”.
A “chief reorganisation officer” will be deployed in Eskom and each SOE receiving bailout funds or requesting a loan guarantee for operational purposes.
This person will be the Treasury’s “eyes and ears” and help ensure that the institution under- takes the restructuring required to become financially self-sufficient.
“Pouring money directly into Eskom in its current form is like pouring water into a sieve,” said Mboweni in his budget speech.
Earlier, at a press briefing, he left journalists in no doubt that the Treasury has lost patience with loss-making SOES and that they will be subject to much stricter oversight from now on.
However, it is unclear whether statements of fresh resolve will be good enough for Moody’s.
Nazmeera Moola, deputy MD of Investec Asset Management, believes a far more plausible plan on Eskom’s turnaround is required in