Finance minister Tito Mboweni Picture: REUTERS/SUMAYA HISHAM
Finance minister Tito Mboweni Picture: REUTERS/SUMAYA HISHAM

When finance minister Tito Mboweni takes the podium on Wednesday South Africans will wait with bated breath to hear about the state of the country’s finances, paying close attention to Eskom as the power utility struggles to keep on the lights.

This comes ahead of what economists warn is the most important national elections since 1994, with the ANC fighting to hold on to its position.

Novare economic strategist Tumisho Grater says the electricity crisis added to the mix of high unemployment and a global backdrop that is less supportive of growth is likely to see the Treasury  revise downward the country’s growth forecasts, which will have an impact on the amount of revenue the government is able to collect.

“While there are expectations that there will have to be some tough decisions, in terms of cutting expenditure in the right places, the question remains where the revenue is going to come from to fund activities and projects that will support economic growth,”  she said.

Capital Economics economist John Ashbourne says given the pressure to keep the deficit in check, the minister may favour an approach that minimises the fiscal cost. For example, the government could move some of Eskom’s debt onto its own balance sheet, Ashbourne said, adding that this would help free up Eskom’s limited resources but would not meaningfully boost publicly guaranteed debt, since the state already backs Eskom bonds.

Old Mutual Investment Group chief economist Johann Els believes the budget is unlikely to reveal an improvement in SA’s fiscal trajectory, but increased spending control could result in the budget balance coming in lower than the 4% deficit targeted in the 2018 medium-term budget policy statement, and this windfall could be used to prop up Eskom. 

NKC economist Elize Kruger expects “further moderate fiscal slippage” given a difficult global growth backdrop, some state-owned entity bailouts and ongoing revenue underperformance. “Depending on the extent of the fiscal slippage and the extent of Eskom support, how it will be engineered and what the cost to the economy will be, Moody’s [Investors Service] could potentially place SA on negative watch at its next review on March 29,”  she warned.

SA is desperately clinging to its last investment-grade status and the budget could be a deciding factor for Moody’s. For this reason, Els says it is unlikely the Treasury will take on R100bn of Eskom debt at this stage, since it will want to avoid a further Moody’s downgrade.

On Wednesday Stats SA will release the consumer price index, and the producer price index will be released on Thursday. Consumer inflation is expected to remain close to the 4.5% midpoint of the target range and convince policymakers to keep the repo rate unchanged at the next meeting of the monetary policy committee (MPC) at the end of March.

In November the MPC increased interest rates for the first time in two years as a preemptive exercise. Since then the inflation outlook has eased, though a volatile rand still poses a risk.

“The jury is still out on several of the potential causes of this latest disinflationary trend and whether they will last,” deputy Reserve Bank governor Daniel Mminele said last week.