Finance Minister Enoch Godongwana.
Analysts have assessed Finance Minister Enoch Godongwana’s 2023 budget as “credit neutral”.
But “neutral”, especially in the wake of an economic crisis, is not always good — and Godongwana has again been criticised for toeing the line to appease creditors to the detriment of the poor.
By far the biggest reveal on Wednesday was the treasury’s decision to relieve Eskom of 60% of its debt, a move that ought to give the utility much-needed room to manoeuvre as it helps navigate the country out of its energy crisis.
The government will provide Eskom with debt relief amounting to R254 billion over the next three years and will also take over up to R70 billion of the utility’s loan portfolio directly in 2025/2026.
The debt takeover plan comes with a number of strict conditions, including restricting Eskom’s capital expenditure to transmission and distribution and forbidding the utility from implementing remuneration adjustments that risk its overall financial position. Eskom will also not be allowed to engage in new borrowing or to use the proceeds from the sale of its non-core assets for its operating needs.
The budget also notes that the treasury has appointed an international consortium to review all Eskom’s plants and that the utility will be required to implement its recommendations. This will include Eskom concessioning its power stations that are deemed viable for resuscitation.
Most agree that the government had no choice but to bail out Eskom, especially as the country fends off a recession.
The treasury’s forecasts put South Africa’s growth at an anaemic 0.9% this year, which — though better than the Reserve Bank’s 0.3% — is far from what is needed to pull back the country’s stubbornly high unemployment rate.
Ratings agencies have warned that the country’s energy crisis, and its resulting low growth potential, is credit negative, hindering its efforts to claw itself out of junk status.
But by taking a portion of Eskom’s debt onto its balance sheet, the government is also deferring its effort to bring down its own ultra-high debt, which has fed into its policy of austerity.
The government’s gross debt is now projected to stabilise at 73.6% of GDP in 2025/2026. Previously the treasury forecast it would peak at 71.1% in 2022/2023.
That said, the government’s mounting debt does not mean it has abandoned its fiscal consolidation goals. The treasury now expects to achieve a primary surplus from this year for the first time since the 2008 global financial crisis.
Moreover, ratings agencies already rate South Africa’s debt as including all Eskom and other state-owned entity debt which the government holds guarantees over, Investec chief economist Annabel Bishop noted.
The budget, Bishop said, is thus credit neutral to slightly positive on the improvement in the primary balance, projected quicker debt consolidation and with the negative impact on the debt ratios mainly coming from Eskom’s debt relief.
The rand strengthened slightly, by about 20 cents, against the US dollar after Godongwana’s speech. “While these are not exceptionally large moves, they do signal a positive stance or at least relief that the government has not changed tack on its fiscal strategy,” said economist at Matrix Fund Managers, Carmen Nel.
Nel noted that the way the treasury has structured the plan, by effectively taking the Eskom cash injections out of the income and expenditure statement and moving it to the balance sheet, lends itself to improved deficit metrics.
Critics of the budget, however, were unimpressed by Godongwana’s perceived neutrality. Trade union federation Cosatu, for example, said: “It is self-delusional to believe that a timid budget will spur the economy to grow and slash unemployment.”
In its assessment of the budget, the Alternative Information and Development Centre (AIDC) accused the treasury of pandering to “the elites, creditors and corporate investors”.
On the Eskom debt relief, the AIDC noted that it has come with some “unacceptable conditionalities”.
“The requirements are that Eskom makes significant concessions to the private sector, the running of key power plants is privatisation of a special type: corporations will make a guaranteed profit with no risk, while the public will have to absorb all the risks should the company run into trouble.”
The AIDC also noted certain trade-offs the treasury makes in the name of fiscal consolidation, which fly in the face of Godongwana’s claim that this is not “an austerity budget”.
For example, though other social grants increased, the R350 social relief of distress grant was not adjusted based on inflation, meaning it is now worth much less than when it was introduced in 2020.
Moreover, main budget spending — excluding rising debt service costs — has been cut by R85.4 billion in real terms compared to the 2022 budget, according to the AIDC’s calculations.
The most dramatic of the budget cuts, the AIDC notes, is in healthcare, where there is a R2 billion reduction in spending in nominal terms. Based on an inflation rate of 5.3% for the 2023/2024 financial year, this amounts to close to a 6% reduction in real terms.
“The truth is that the treasury’s hunt for The Holy Grail of a ‘primary budget surplus’ has produced another austerity budget — just harsher than ever,” the AIDC said, adding that the ‘primary budget surplus’ is a commitment the government has made to its creditors.
During a media briefing ahead of his budget speech, Godongwana acknowledged that department baselines have been eroded over the years, leaving them well below where they ought to be.
“What we are trying to do is actually correct that erosion of the baseline,” he said.
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