Eskom debt albatross hangs over plans to stabilise budget
JOHANNESBURG - Finance Minister Enoch Godongwana faces the task of incorporating a credible debt relief plan for the stricken State power utility in the national budget while stabilising government finances as record blackouts weigh on the economy. The minister said in October the State will absorb between one- and two-thirds of Eskom’s liabilities of about R400 billion. The amount and some of the transfer terms are likely to be announced in his budget tomorrow. Nine of 17 economists surveyed by Bloomberg believe government can afford to assume half the utility’s loan obligations without compromising efforts to reduce the budget deficit and rein in debt.
Reducing Eskom’s liabilities will allow the loss-making company to raise funds to carry out plant maintenance and strengthen the power grid. However, it will also add to the state’s overall debt burden of almost R5 trillion and to its debt service costs, the fastest-growing expenditure line item for about a decade.
Relief
Godongwana has previously said National Treasury will make relief contingent on Eskom meeting performance targets and the transfer of funds will be staggered. He doesn’t envision the utility’s bondholders being asked to take haircuts, which would be tantamount to default. The plan ‘won’t necessarily overturn the apple cart, but if government debt is not carefully managed and Treasury fails to follow through on consolidating public finances, South Africa will likely struggle to avoid going off a fiscal cliff,’ said Jee-A van der Linde of Oxford Economics Africa. Record blackouts will complicate Godongwana’s efforts to convince markets that key fiscal metrics, including the budget gap and primary balance, will improve.
The outages cost the country as much as R899 million per day and have prompted the central bank to cut its 2023 economic growth forecast to 0.3 per cent from 1.1 per cent. Treasury will revise its economic growth outlook, but cutting its forecast nominal GDP values ‘too drastically wouldn’t be judicious’, said Annabel Bishop, chief economist at Investec Bank.