Treasury auctions R1.2bn bonds as Eskom bailout, tax revenue shortfall strain budget
CAPE TOWN – The National Treasury announced on Thursday that the fixed-rate and inflation-linked bonds weekly auction increased by R1.2 billion, from R3.3bn to R4.5bn.
Treasury said that Eskom's R59bn bailout and the preliminary indication of tax revenue shortfall announced by the finance minister in the special appropriation bill speech last week had prompted government to revise its funding strategy and an increase in government's borrowing requirement for the 2019/20 financial year.
The ministry said in its statement that the inflation-Iinked bond auction amount would increase by R280 million, from R760m to just more than R1bn and that there would be no further switch auctions for the rest of the 2019/20, as the National Treasury was currently reviewing its bond switch auction programme.
Government entities regularly issue bonds and list them on the JSE debt board to raise funds for large capital projects, and investors lend money to these entities by buying the bonds.
Investors buy government bonds in order to earn for regular interest payments and receive the money they have lent back after a predetermined period. More than R1 trillion is currently listed on the JSE's debt board and these instruments account for 90 percent of all liquidity reported to the JSE.
Investec economist Lara Hodes said credit rating agencies reacted adversely to the announcement, raising concerns over the additional consequences the bailout would have on the budget deficit and expenditure ceiling set. “Moody’s deemed the additional funding as ‘credit negative’, while Fitch downgraded the country’s outlook to negative from stable.”
The front-loading of the financial support given to Eskom is in line with the President’s announcement in the June State of the Nation Address. It is a partial early disbursement of the R230bn commitment announced in the Budget 2019, not additional support, according to the statement.
Eskom continues to face critical operational and financial challenges, recently announcing a net loss after tax of R20.7bn for the year to March, thus reflecting the severity of their predicament.
Electricity production lifted marginally by 0.1 percent year on year in June. “Conversely, the volume of electricity consumed contracted further in June, by 1.6 percent year on year, following May’s 1.3 percent year on year decline, bringing the year-to-date consumption reading to -0.8 percent year on year,” said Hodes.
At Eskom’s annual results presentation the executive chairperson Jabu Mabuza, who has also been appointed as the power utility’s acting acting chief executive, said: “Although we face serious financial and operational challenges, we as the Board are committed to achieve our turnaround plan through disciplined execution and stewardship.”
Additional reporting by African News Agency (ANA)
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