Eskom debt plan in focus at South Africa’s mid-term budget

PUBLISHED: Tue, 25 Oct 2022 12:17:49 GMT
Kopano Gumbi
Reuters
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A general view of the headquarter of the embattled South African main electricity provider ESKOM is pictured on February 4, 2015 in Johannesburg. South Africa power supply was under “extreme” pressure on February 2, 2015 and likely to remain so until end of the week after a technical fault at the country’s sole nuclear plant, electricity utility Eskom said. AFP PHOTO/GIANLUIGI GUERCIA (Photo by Gianluigi GUERCIA / AFP) (Photo by GIANLUIGI GUERCIA/AFP via Getty Images)

JOHANNESBURG, Oct 25 (Reuters) – South Africa’s finance minister is expected to announce a plan to take on part of power utility Eskom’s mammoth debt in a mid-term 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 a roughly 400 billion rand ($21.69 billion) 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 different ways to solve the problem. Read full story

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

“Anything less than 150 billion rand would be deemed insufficient,” said Isaah Mhlanga, chief economist at Alexforbes AFHJ.J.

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

Economists are also watching whether Finance Minister Enoch 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, says a grant of 350 rand a month introduced during the COVID-19 pandemic should be increased to the food poverty line of more than 660 rand a month, which could cost the state an additional 30 billion rand a year.

Some economists believe a temporary extension of the 350 rand Social Relief of Distress grant could be funded by higher-than-expected revenue from mining taxes.

But overall, analysts expect 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 seen tightening.

“We expect the fiscal consolidation strategy to be sustained, providing fiscal certainty and sustainability,” local bank FNB said in a research note.

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

($1 = 18.4449 rand)

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