Embattled state-owned companies, Denel, SAA and the SABC, are next in line to receive government bailouts after the National Treasury confirmed yesterday it would give Eskom R59 billion over the next two years to keep the utility afloat.
Finance Minister Tito Mboweni said once the 2019 Appropriations Bill was passed, the government would make allocations to support enterprises like the SABC, Denel and SAA. “Once this bill is passed, we will be in a position to use the contingency reserve account to provide support to the SABC, to Denel and SAA,” Mboweni said. SAA has said that it would need a R4 billion bailout to get through the current financial year, while the SABC has demanded R3.2bn. Arms manufacturer Denel this week told employees that their July salaries may not be paid on time with the company blaming “current liquidity challenges”.
The looming bailouts came as Mboweni admitted that the Treasury would be forced to revise its funding strategy after its multibillion-rand bailout of Eskom. Mboweni said the government would give Eskom R26bn this year and R33bn next year on top of the R23bn a year over the next three years that it had allocated to the power producer in the February budget. The latest financial support for the power utility means that the government would have supported it with R49bn in the 2019/20 financial year and R56bn in the 2020/21 period and R23bn in 2022 with at least another R100bn in the pipeline in coming years.
Mboweni said the support would come at a significant cost to the country’s already strained fiscus. “In addition to the financial support to Eskom, there is also a preliminary indication that tax revenue could be significantly lower than budgeted for in the 2019 Budget,” Mboweni said. “This could substantially increase the government borrowing requirement for 2019/20, which will require government to revise its funding strategy and current weekly bond issuance levels before the MTBPS in October.” Mboweni warned that the country’s debt-to-GDP ratio was reaching crisis levels.
The International Institute of Finance (IIF) said last week that the country’s debt-to-GDP ratio reached 59.3 percent in the first quarter of the year. NKC African Economics economist Elize Kruger said a significant revenue shortfall and more bailouts for Eskom and other state-owned entities would not be received favourably by ratings agencies. “In our view, the extent of the fiscal slippage that will be presented at the October MTBPS will trigger rand weakness and a growing probability that Moody’s Investors Service will change the outlook on its current investment-grade credit rating from stable to negative,” Kruger said.
Dave Mohr, chief investment strategist at Old Mutual Multi-Managers, said the bailout demands of Eskom and other SOEs would put pressure on the spending side. “The October mini-Budget will therefore probably show a budget deficit higher than the projected 4.5 percent of national income. “This additional borrowing adds to the government’s debt and is not good for our credit rating,” Mohr said.