Eskom is the cause of rising government debt
SA’s steeply rising debt is crowding out spending on other budget items and is a key concern raised by credit ratings agencies
Financial support for Eskom by the government is the reason behind the rising debt-to-GDP ratio, treasury director-general Dondo Mogajane told parliament’s joint finance committee on Thursday.
The national budget, which was tabled in parliament on Wednesday, allocated R23bn a year for the next three years to Eskom to assist it with servicing its debt. The support is anticipated to continue over 10 years, amounting to a total of R150bn, although this may vary depending on Eskom tariffs, electricity demand and economic growth.
A year ago, the Treasury said that SA’s debt-to-GDP ratio was projected to stabilise at 59.6% in 2023. This has now been pushed higher with debt projected to stabilise at 60.2% in 2023.
The plan to stabilise debt is an important part of the government’s pledge to fiscal consolidation. SA’s steeply rising debt is crowding out spending on other budget items and is a key concern raised by credit ratings agencies.
“If we subtract Eskom support, then the story we gave this committee a year ago makes sense. If you strip that support out, then our fiscal consolidation story has started to bear fruit. It is just unfortunate that one of the risks we envisaged has materialised. Without Eskom, our fiscal consolidation is credible,” said Mogajane.
Ratings agency Moody’s, which is only one of three agencies that rates SA government debt as investment grade, is to due to make a critical decision on its outlook for SA on March 29.
President Cyril Ramaphosa announced in his state of the nation speech that Eskom will be split into three parts dealing respectively with generation, transmission and distribution.
The Treasury’s acting head Ian Stuart said at the briefing on Thursday that the detailed work on how exactly the money allocated to Eskom will flow and how the division of assets and liabilities will be done between its three entities after the split, is still a work in progress.
But the Treasury decided that, even though the work on the financing was not complete, it was prudent to say something about it in the budget rather than nothing given the severity of the Eskom crisis.
Eskom is in deep financial distress with R419bn of debt, which it is unable to service. Financial pressures have caused it to cut maintenance on spending in half over the past four years.
Finance minister Tito Mboweni said that the objective of the split is to enable more players and more competition in the electricity generation and distribution sectors, which would be good for competition. He said that the transmission company, which is not expected to be heavily indebted after the split, will remain state owned. “The president has been very strict on this,” he said.
In comments yesterday, Mboweni said that the Public Investment Corporation (PIC) could be asked to swap debt for equity in the transmission company.
If that were to occur, said Stuart, “it would not be a situation in which the PIC would do a debt equity for assets swap, on which there is no return.”