Global analysts warn SA’s fiscal challenges could worsen
SA’s fiscal challenges are likely to worsen as Eskom, the country’s ailing power utility, may need yet more funds in 2020 over and above what the government plans to allocate, a report by global economic forecast and analysis group FocusEconomics says.
The report released on Wednesday says SA will likely record growth of 1.4% in 2020, and 1.7% in 2021. The authors of the report highlighted that the country’s fiscal challenges continue to mount, with Fitch Ratings downgrading Eskom’s stand-alone credit rating further into junk territory on September 30. The cut affirmed the state power provider’s waning ability to ease its hefty debt load, intensifying the pressure on public finances, the report stated.
Eskom a major risk
With a mounting debt of R440bn, which it cannot service from revenue, Eskom is regarded as a major risk to SA’s finances. The power utility resorted to load-shedding on Wednesday due to plant breakdowns, further underscoring the huge structural, operational and financial problems it faces. Load-shedding poses a significant risk to economic recovery.
Parliament has been considering the special appropriation bill which will see the Treasury allocate R26bn to Eskom for the 2019/2020 financial year and R33bn for the 2020/2021 financial year. This allocation is in addition to the R23bn allocated in the February budget for 2019/2020 and each year for 10 years, giving a total of R230bn. Of this, R17.65bn was allocated on an emergency basis in April to address Eskom’s immediate challenges.
The FocusEconomics report highlighted the latest bid to ease Eskom’s cost burden, when ministers called on coal producers to slash prices. Furthermore, the Treasury’s bailout conditions—presented to parliament on October 9 and which will require monthly updates to monitor debt repayments and minimise default risk — have eased Eskom’s risk premium. But this will not be enough to boost growth as the utility remains in need of more financial support from the state.
Growth in the SA economy — mainly driven by the services, manufacturing and mining sectors — has been slowing since 2011, when it recorded 3.3%. It fell below 2% from 2014.
According FocusEconomics, weaker global risk appetite, coupled with domestic structural and political issues, have also weighed on economic growth and the rand, which has depreciated since mid-September.