Mboweni will have to arrest debt while helping SOEs
FINANCE Minister Tito Mboweni will tomorrow have the unenviable task of arresting the government’s runaway debt while providing financial support for embattled state-owned entities, particularly Eskom.
Fiscal policy expert professor Phillippe Burger said the 2019 Budget will be one of the most challenging Budgets the government has had to compile since 1994.
“The biggest challenge the government faces is the need to bail out virtually insolvent state-owned enterprises, most notably Eskom and South Africa Airways,” Burger said.
Eskom has told bond investors that it wants the government to assume about R100 billion of its debt.
Eskom’s debts, which are more than 20 times larger than those of SAA, reached 8.5 percent of gross domestic product (GDP) late last year. The government already guarantees more than R250bn of Eskom’s R420bn debt.
Moody’s has warned that financial support to Eskom not accompanied by measures to stabilise its financial health would be credit negative for the sovereign.
The medium-term budget policy statement (MTBPS) in October drew a bleak picture of the public purse.
The MTBPS flagged a deterioration of fiscal ratios versus the 2018 Budget expectations, projecting the main budget deficit at more than 4 percent of GDP over the medium term, with debt stabilising at 59.6 percent of GDP in 2023/24. A report by Bank of America Merrill Lynch estimated the main budget deficit reaching 4.5 percent in the medium term and the public debt profile breaching 60 percent in the 2022 financial year.
Investec chief economist Annabel Bishop said the Budget was likely to reflect elevated deficit and debt levels, with limited fiscal space.
“The Budget is not expected to reflect further significant fiscal slippage, and should the Eskom financial support be deficit neutral, it is likely that Moody’s will maintain its South Africa rating,” Bishop said.
Investec expects Moody’s to downgrade South Africa’s outlook from stable to negative this year, with a possibility that the credit rating itself will be downgraded.
FNB chief economist Mamello Matikinca-Ngwenya said: “We believe that key upside risks could materialise, sending the national debt-to-GDP ratio beyond the 60 percent-mark over the medium term. This would be triggered by a transfer of SOE debt on to the government’s balance sheet, in an attempt to provide some debt relief for these institutions.”
Mboweni said in his maiden MTBPS that 15.1 percent of main budget revenue would be used to service debt in 2021/22 compared with 13.9 percent in 2018/19.
He further warned that the country might be forced to approach the International Monetary Fund for assistance if the debt-to-GDP ratio breaches the 60 percent mark.