CAPE TOWN – The main expectation on Finance Minister Tito Mboweni as he tables his first national budget on Wednesday is a matter of unanimity but a daunting task given the country's balance sheet and credit rating prospects – he has to throw a lifeline to embattled national power utility Eskom before it goes bankrupt in April.
Economists agree that Mboweni, who has since his appointment last year appeared both a reluctant Treasury chief and a reluctant giver of bailouts to state-owned companies, has no choice but to disagree on how much he could or should extend.
President Cyril Ramaphosa included financial help from the fiscus in a range of measures he promised in his state of the nation address to shore up the company that has R420 billion in debt, and was this week pronounced technically insolvent by public enterprises minister Pravin Gordhan.
Old Mutual chief economist Johann Els said he believed it was unlikely that the minister would take on R100 billion of Eskom debt at this stage, given the risk that such a step, in a pre-election budget that leaves little political room for trimming spending elsewhere, would spur rating agency Moody's to downgrade its outlook for South Africa from neutral to negative.
The agency warned in a research note last week that the planned restructuring of Eskom does not change the debt outlook as there has been no move yet on cutting costs.
“It is more likely that Eskom will be given another fiscal injection to the tune of R15 billion to R20 billion,” Els said.
Els believes that Mboweni could extend this much in a deficit neutral manner given the buffer created by existing spending controls.
"For now, small injections are likely less risky than large debt transfers. Unless there is serious fiscal slippage or Treasury decides to take on R100 billion of Eskom debt without a serious turnaround plan, I expect Moody’s to maintain its stable outlook and the current investment grade rating.”
George Glynos from ETM Analytics was less sanguine about Moody's holding off on a downgrade, making the point that the ratings agency has already shown South Africa considerable indulgence by keeping the sovereign rating in investment grade while sounding warning that the rate of fiscal consolidation had slowed.
"I think even Moody's is reaching the end of its levels of patience," he said on Monday, adding that the only way it could rationalise maintaining the rating was having already factored the current data into its assessments.
Where other analysts believe the lag of expenditure growth in the three quarters of the financial year, which has put it about three percent or R20 billion below target, would help the minister to support Eskom, Glynos said the relief the power company needed was roughly ten times that, in the order of R200 billion.
He warned that stretching the relief offered to that sum would push the GDP to debt ratio uncomfortably near the 60 percent mark.
The more likely scenario was rotating a percentage of Eskom's debt amounting to as much as R100 billion to R150 billion onto the government's balance sheet, or leaving the debt on Eskom's balance sheet but committing the state to taking over interest payments to bridge the gap it currently faces between monthly operational revenue of R22 billion and interest payments of R45 billion.
Glynos said relief of this order alone would still not stabilise the company and it would need the National Energy Regulator of SA to grant large tariff increases. "There will have to be a big tariff increase, not just debt relief."
The outcry from the National Union of Mineworkers over retrenchments following Ramaphosa's announcement that the utility would be unbundled, underscored how hard it would be politically, especially in an election year, to tackle overspending caused in part by overstaffing of more than 30 percent at Eskom.
This was part of a wider ideological problem, Glynos argued, in the African National Congress government's view of the need for it to retain the ability, in the form of state-owned companies, to be able to intervene at every level of the economy rather than to trust the private sector to play a greater role.
The result was that the state had delayed delivery on infrastructure projects and sacrificed the rate of fiscal consolidation for the sake of servicing an excessive wage bill. Unless this trend was arrested, South Africa remained too vulnerable to major turbulence in the global economy, such as the 2009 crash, he said.
"We don't have a lot of resources in space capacity and it leaves us one big crisis away from our own big crisis."