Facing mounting debt and blackouts, SA to deliver budget

Net debt currently stands at around 2.28 trillion rand, or 48.6% of GDP, according to the treasury.
South African Minister of Finance Tito Mboweni delivers his Medium-Term Budget Speech on October 24, 2018, in the South African Parliament in Cape Town. – South Africa’s new finance minister faces an unenviable balancing act in his mid-term budget statement on October 24, trying to reconcile the need to take control of sky-high public debt with calls for more spending ahead of 2019 polls. (Photo by Rodger BOSCH / AFP)

South Africa’s Finance Minister Tito Mboweni faces a balancing act ahead of his maiden budget Wednesday to reassure investors over the country’s troubled public electricity company without alienating union allies ahead of national elections.

He is under pressure to bail out the state power utility Eskom — along with its $30 billion mountain of debt — which is at the centre of the country’s mounting economic troubles.

Mboweni will deliver his maiden budget to parliament in Cape Town at 1200 GMT.

Analysts warn of tensions that may emerge should the restructuring lead to job losses.

President Cyril Ramaphosa announced this month that the utility would be divided into three, but unions have rejected that, saying it would lead to job cuts.

Over the past few weeks the utility has implemented a nationwide programme of rolling blackouts as it failed to meet demand. 

The scale of the power outages, unseen in more than a decade, has rocked the continent’s most industrialised nation, plunging businesses, homes and traffic lights into darkness.

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But the ruling African National Congress (ANC) has been warned by its coalition partner, the COSATU trade union federation, that sackings could damage their alliance ahead of national elections due on May 8.

“We remain totally opposed to any restructuring plan that will benefit the capitalist class and increase prices for the working class,” said spokesman Sizwe Pamla.

Ramaphosa indicated last week that details of the government’s rescue plan, which will be designed to stave off another damaging credit rating downgrade, would be revealed in Wednesday’s budget.

Fears are mounting that if Eskom defaults on its massive debts, lenders would be entitled to call back other loans to different parts of the state including the troubled national carrier South African Airways.

Fraud, corruption and incompetence have gripped public sector businesses and compromised their credibility while mounting debts have spooked investors.

High unemployment and debt

“It has become clear that Eskom’s coal-heavy system is now a dangerous impediment to sustainable growth in South Africa,” said Jesse Burton, a researcher at the University of Cape Town’s Energy Research Centre.

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Mzukisi Qobo, an associate professor at Wits Business School, said Mboweni would likely announce steps “towards eliminating wastage in government and offer a clue on whether government intends to increase taxes”.

Several taxes including VAT as well as levies on fuel and alcohol were hiked last year in an effort to raise 36 billion rand ($2.5 billion) to plug gaps in receipts at the tax collector.

Mboweni, who replaced former finance minister Nhlanhla Nene when he was forced to resign over meetings with the scandal-tainted Gupta brothers, took office in October.

His speech is also expected to address the country’s stubborn 27 percent unemployment rate as well as the overall sluggish economy which only returned to growth in December following a recession.

Net debt currently stands at around 2.28 trillion rand ($160 billion), or 48.6 percent of GDP, according to the treasury.

Michael Sachs, an economist at Wits University, said the government was being forced to borrow more to service its debts, creating a dangerous cycle.

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He called for “an executive with clear and effective policies, that makes trade-offs, confronts those trade-offs and mobilises society behind those solutions”.

“Whether we will get there after the election, I am not sure,” he added.

Ramaphosa will be hoping Mboweni’s speech treads a fine enough line to help him win a sixth term for the ANC, in power since the dawn of democracy in the country in 1994.


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