Medium-term budget: Eskom debt plan in focus

Finance minister Enoch Godongwana is expected to announce a plan to take on part of power utility Eskom’s mammoth debt in his midterm budget on Wednesday, although analysts say the legally complex transfer will take time to execute.

State-owned Eskom has been mired in financial crisis for years and has roughly R400bn in debt it cannot afford to service.

It has required recurring government bailouts that have placed public finances under huge strain, with officials grappling with ways to solve the problem.

Economists said a large portion of Eskom’s debt needs to be absorbed by the state to make it financially stable.

“Anything less than R150bn would be deemed insufficient,” said Isaah Mhlanga, chief economist at Alexforbes.

BNP Paribas analysts said getting bondholder buy-in for the debt transfer would be critical.

Economists are also watching whether Godongwana unveils new support measures for the poor, as civil society groups have lobbied for the introduction of a universal basic income grant.

The Institute for Economic Justice, a Johannesburg-based think-tank, said the social relief of distress (SRD) grant of R350 a month introduced during the Covid-19 pandemic should be increased to the food poverty line of more than R660 a month, which could cost the state an extra R30bn a year.

Some economists believe a temporary extension of the grant could be funded by higher-than-expected revenue from mining taxes.

Overall, analysts expected the government to stick to a conservative fiscal policy as economic growth is expected to remain weak in the coming years and global financing conditions are tightening.

“We expect the fiscal consolidation strategy to be sustained, providing fiscal certainty and sustainability,” First National Bank said in a research note.

A Reuters poll predicted buoyant mining receipts would allow Godongwana to give a narrower budget deficit forecast for this fiscal year.

Reuters