Eskom too big to fail, says World Bank
SA thought to have run out of space to use macroeconomic policy to promote economic growth
Eskom is too big to fail and the government has little option but to restructure its debt, World Bank country director Paul Noumba Um said at the release of the bank’s economic update for SA on Tuesday.
“This is a case of being too big to fail. The SA economy cannot afford to allow Eskom to fail. The way forward entails a debt-restructuring aspect and the company becoming more efficient,” said Noumba Um.
Eskom has suggested that the government take over R100bn of its R419bn debt to reduce the burden of interest repayments and put its finances on a more sustainable footing.
A task team set up by President Cyril Ramaphosa is considering the company's options and is to report soon to the cabinet on proposals. Included in the package will be proposals on debt, tariffs, cost savings and the restructuring of the energy sector.
Noumba Um said the Eskom debate was going “in the right direction, because all aspects are being looked at, including the sector”.
The update projected GDP growth for SA at 0.9% for 2018, 1.3% for 2019 and 1.7% for 2020. Economic growth was said to be well below population growth, indicating that it would not be enough to counter inequality and poverty.
“SA’s anticipated economic rebound in 2018 did not occur, confirming the deep-seated nature of its growth challenges,” the report said.
Presenting the report, which has a detailed section on tertiary education, World Bank programme leader Sebastien Dessus said that SA had run out of space to use macroeconomic policy to promote economic growth.
“There is not a lot of space for either fiscal or monetary stimulus: debt levels are very high; the exchange rate is already overvalued; and there is little scope for monetary policy to stimulate growth.”
Dessus said SA had to look to “deep structural reforms” to generate growth. For this reason the update focused on tertiary education, which the bank viewed as “low-hanging fruit” among the areas of possible reform.
But for tertiary education to play a growth-inducing role, SA needed to expand enrolment and improve the quality of education, particularly at Technical and Vocational Education and Training (TVET) colleges. Strategies for improvement included prioritising TVET and community colleges, expanding distance learning by universities, allowing more private-sector participation and exploring new funding models.
Important trade-offs had to be made between allocating resources to expanding access and improving quality and the funding of students with a full grant system.
SA changed its student funding model in 2018 from a loan-based system to a 100% grant system for students with household incomes of less than R300,000. This model, said the World Bank, was unsustainable as the government could not sufficiently cover these costs — or earn a return — through the taxation on their earnings after graduation.
The public return for grant funding to TVET and university students was negative at -4.1% for colleges and 1.5% for universities.