Eskom debt a sticking point in upcoming budget

Rating agencies are likely to downgrade South Africa if the government takes on more of Eskom’s debt. Finance Minister Tito Mboweni is expected to detail government’s support for the power utility in his budget speech next week. Economists say difficult political and policy decisions will have to be taken to stop the country’s public finances from deteriorating. John Bailey has the story. Courtesy #DStv403

JOHANNESBURG - Ratings agencies are likely to downgrade South Africa if the government takes on more of Eskom's debt.

Finance Minister Tito Mboweni is expected to detail the government's support for the power utility in his budget speech next week.

Economists say difficult political and policy decisions will have to be taken to stop the country's public finances from deteriorating.

READ: Ramaphosa: No silver bullet to fix Eskom

The focus of the national budget will be kick-starting the economy and cleaning up state-owned enterprises.

The budget will be judged on how the government deals with Eskom.

If the power utility is granted a bailout, the budget deficit could rise to five percent.

Economists say Eskom should be financially self-sustainable.

READ: Parliament sets date for Eskom debate

Tsitsi Hatendi-Matika, an Absa head investment specialist, said, "their debt is R419-billion of which they're hoping <the> government will take over R100-billion."

"Just to give you context why this is such a big thing, Eskom is struggling with operational issues and repaying debt."

A World Bank study found that Eskom is overstaffed by more than 27,000 people, this is more than half of its total workforce.

The state must also find a way to stop bailing out other dysfunctional SOEs, these include the cash-strapped SAA, the SABC and the Post Office.

Rating agencies are closely watching how the government is dealing with its unmanageable debt.

If South Africa is downgraded to sub-investment grade, the country will automatically be removed from the Citi World Government Bond Index, forcing asset managers to sell billions of rands' worth of SA bonds.

Source
eNCA