Finance Minister Enoch Godongwana. (Dwayne Senior/Bloomberg via Getty Images)
The government’s decision to provide Eskom with a R254 billion lifeline means that the sovereign’s debt will now stabilise later, and at a higher level, than previously expected.
This is according to the 2023 budget, which was tabled by Finance Minister Enoch Godongwana on Wednesday. The treasury’s policy of fiscal consolidation, driven by Godongwana and his predecessors, has aimed to stabilise public debt, which is expected to remain high for the foreseeable future.
Government debt is now projected to stabilise at 73.6% of GDP, compared with the 69% predicted in October’s medium-term budget policy statement. It is expected to stabilise in 2025/2026 rather than in 2024/2025.
State spending has exceeded revenue since the 2008 global financial crisis. Since then, debt has increased at a much faster pace than the growth of the economy and newly issued debt has become more expensive to service. Interest payments on debt consume 18 cents of every rand of government revenue.
The government’s gross debt stock is projected to increase from R4.73 trillion in 2022/2023 to R5.84 trillion in 2025/2026. And, as Godongwana pointed out in his speech, “because debt is high, our debt service costs are also high”.
Debt service costs are projected to average R366.8 billion annually over the medium term, reaching R397.1 billion in 2025/2026. “These are resources,” the minister said, “that could otherwise be used to address pressing social needs or to invest in our future.”
The Eskom debt relief arrangement is a balance sheet transaction, meaning that the government will endure significantly higher borrowing costs. However, according to the budget, “prudent fiscal policy and debt management will ensure that this arrangement does not put the fiscal framework at risk”.
Over the next three years, the government will service R184.4 billion of Eskom’s debt and, in 2025/2026, will take over up to R70 billion of its debt. As a result, the gross borrowing requirement will increase from R515 billion in 2023/2024 to R555 billion in 2025/2026.
The budget noted that, despite mounting debt, the country’s fiscal position has improved since 2021, largely as a result of fiscal consolidation, economic recovery and accelerated GDP inflation.
The treasury expects the country will achieve a main budget surplus from this year onwards for the first time since 2008. However, significant fiscal risks remain. These include the country’s deteriorating growth outlook, higher interest rates, the weak financial positions of several state-owned entities and the public sector wage bill.
The economy will grow by a meagre 0.9% in 2023, according to the treasury’s forecast, as a result of the ongoing energy crisis. GDP growth is expected to decline over the medium term, averaging 1.4%, as a result of the power cuts, as well as deteriorating ports and rail infrastructure and a weaker global outlook.