From Eskom’s R450bn debt to tax shortfalls: What to watch out for in the medium-term budget


Finance Minister Tito Mboweni

Finance Minister Tito Mboweni (Gallo) ~ Gallo Images

Finance Minister Tito Mboweni is expected to announce how the state will reduce struggling power utility Eskom’s R450bn debt burden on Wednesday when he delivers his second medium-term budget address in Cape Town.

The mini budget, which takes place in October, broadly sets out government’s spending plans for the next three years. It also includes updates on tax revenues, the rate of South Africa’s economic expansion, and revisions to expenditure. It does not, generally, include announcements on new taxes or revenues as these are the purview of the main February Budget. 

Mboweni’s address in Wednesday afternoon may be the most important medium-term budget to date, says Adrian Saville, the chief executive of Cannon Asset Managers in Sandton. “With a resurgence of load shedding, crisis-level unemployment figures, and economic growth teetering between zero and one percent, government is quickly running out of time and options to address the country’s challenges.”

Eskom’s growing debt burden has been flagged as one of the key challenges facing SA’s economy by rating agency Moody’s, the sole agency to still asses SA at investment grade. Moody’s is set announce whether it will alter SA’s sovereign credit rating on Friday. 

The agency’s lead analyst for South Africa, Lucie Villa, told an investment conference in Johannesburg in mid-September that the country’s stable outlook provided a low likelihood that its credit rating would change. Of the 17 economists in a Bloomberg survey, meanwhile, nine forecast that Moody’s would change its outlook to negative before the end of the year.

Eskom rescue plan good to go 

Mboweni will be presenting his second medium-term budget the day after Finance Minister Pravin Gordhan announced the state’s long-awaited plan to rescue Eskom, and 11 days after the Integrated Resource Plan was published. The publication of the two documents – which together lay out the master plan for SA’s electricity sector – puts Mboweni in a position to announce government’s programme of action to reduce the state entity’s debt, which has swelled to R450bn. 

Eskom does not make enough money from selling electricity at current prices to pay the cost of its debt, and the state has needed to intervene twice this year to grant it two separate lifelines: a three-year R69bn bailout announced in February, and a separate R59bn lifeline spread out over two years included in a bill making its way through Parliament.  

Mboweni is also expected to announce another projected tax shortfall, which may reach R50bn according to Momentum Investments. He may also speak on plans to reduce the state’s wage bill.

A growing budget deficit 

The bailouts of state-owned entities, together with lower-than-expected tax revenues, mean that the shortfall of tax revenue relative to government spending has shot up, said Dave Mohr and Izak Odendaal from Old Mutual Wealth. 

“The Finance Minister is expected to announce that the expected budget deficit for the current and next fiscal year has ballooned to between 5% and 6% of national income,” the say. 

Unions, meanwhile, will be be looking for references to Treasury’s economic policy paper published in August. The final version of the paper is expected to be released at the same time as the budget on Wednesday. 

“We hope that Minister Mboweni will not seek to revive the obnoxious anti-worker attacks in Treasury’s economic growth strategy,” Matthew Parks labour federation Cosatu’s parliamentary coordinator, told Fin24 last week. Cosatu also wants Mboweni to outline how the billions lost to state capture will be recovered. Ramaphosa in October told the Financial Times Africa Summit in London that the cost of state capture could be more than R500bn. 

– Additional reporting by Lameez Omarjee 


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