CAPE TOWN – South Africa's Finance Minister, Tito Mboweni, painted a fairly gloomy outlook for the economy on Wednesday, predicting slower growth after a technical recession last year and singling out state firms such as power utility Eskom as serious risks to the fiscal framework.
Presenting the 2019 budget view to Parliament, Mboweni noted that funding requests from Eskom, national airline SAA, public broadcaster SABC, state arms' company Denel and other financially challenged state-owned enterprises had increased, with several requesting support.
"Isn’t it about time the country asks the question: do we still need these enterprises?" he said.
"If we do, can we manage them better? If we don’t need them, what should we do?" he asked, but nonetheless pledged R69 billion in relief forEskom.
At a media briefing before his speech, Mboweni said if it were up to him, state firms that served no purpose to the economy and drained the state's coffers would be shut down, but acknowledged that all stakeholders had to be consulted.
In its budget review, the National Treasury cut growth forecasts for the next three calendar years, but said there were positive signs the economy had begun to gain lost ground following a decade of weakness.
It said gross domestic product (GDP) would expand by 1.5 percent in 2019, scaling down its estimate from the 1.7 percent predicted last October. It kept its 2018 estimate at 0.7 percent and said growth would reach just 2.1 percent by 2021, instead of the 2.3 percent anticipated in October.
“The revisions take into account weaker investment outcomes in 2018, a more fragile recovery in household income and slower export demand than expected due to moderating global growth," Treasury said.
The budget deficit was expected to widen to 4.5 percent of GDP in the 2019/20 fiscal year from 4.2 percent in 2018/19, due to weak economic growth and tax revenue.
This was a deterioration from last October's forecast deficits of four percent and 4.2 percent for 2018/19 and 2019/20 respectively. The shortfall is however still expected to stabilise at four percent by 2021/22.
With revenue in the coming year amounting to R1.58 trillion against spending of R1.83 trillion, Mboweni said South Africa would effectively have to borrow about R1.2 billion each day to plug the gap.
He said cash-strapped Eskom would get an additional R23 billion from the state annually over the next three years to help service its debt, but stressed the government was not taking over the utility's debt. The cash injections would go hand-in-hand with its restructuring into three independent components.
"Eskom took on the debt. It must ultimately repay it," said Mboweni.
He raised the prospect of the Public Investment Corporation -- Africa’s largest asset manager with more than R2 trillion under management -- converting some of Eskom's debt into equity.
He said it was possible to find an equity partner for the new transmission arm of the power utility without resorting to privatising. This is likely to offer some reassurance to labour unions worried about possible job losses.
The Treasury noted ratings agencies’ concerns about South Africa’s tepid growth, rising debt burden and contingent liabilities, reflected in sub-investment grade ratings from Fitch and S&P Global.
Moody's, which still rates South Africa above "junk" status, is expected to do a review fairly soon. It warned last week that unbundling Eskom alone would not dissuade it from downgrading the country's rating.
Mboweni told a media conference prior to his speech in parliament that the National Treasury's talks with international ratings agencies on the eve of the budget had been "very difficult".
"They were almost saying 'you are damned if you do and damned if you don't,'" he said, referring to the complex balancing act of shoring up Eskom while keeping spending in check.
He said as a gesture of goodwill, members of Parliament and provincial legislatures and executives at public entities would not be receiving a salary increase this financial year.
"The public wage bill is unsustainable. We must shift expenditure to investment," he said.
Opposition parties gave Mboweni's speech the thumbs down, with Julius Malema, leader of the militant Economic Freedom Fighters, bemoaning what he called a lack of clear plans on job creation and land reforms.
"It was flat, it has nothing to offer and he just repeated exactly what he said in the past," Malema said.
Democratic Alliance leader Mmusi Maimane called the 2019 fiscal proposals a “lipstick budget".
“Is that instead of taking bold and decisive action on Eskom, we have allocated more bailouts,” Maimane said.
"[Mboweni] made it look pretty on the outside but frankly, it dealt with nothing."