Finance Minister Enoch Godongwana. Photo: GCIS
Government’s reasoning around where it plans to allocate its budget over the next three year, as announced in the Medium-Term Budget Policy Statement, was fairly clear: Medium-term spending increases are targeted to increase the number of teachers and police, retain health workers, and improve critical water, roads and rail infrastructure – and, of course, a massive Eskom bailout.
Government believes that these actions will help unblock some of the bottlenecks restricting economic activity.
In a global slowdown marked by high levels of economic risk and fiscal distress, particularly for developing countries, the South African government is setting out to promote economic recovery above everything else.
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And to do this, government aims to also address the weakness in public entities such as Transnet, Sanral and Eskom.
Fortunately, it can do this because the country’s fiscal position is stronger. The fiscal position has improved since the 2022 Budget as a result of better-than-expected revenue collection.
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Treasury plans to assume between one to two thirds of Eskom’s R400 billion debt, with a debt relief programme.
Further details of the programme, which will be finalised following consultations with all relevant stakeholders, will be announced in the 2023 Budget.
This will allow Eskom to implement planned capital investment and critical maintenance, and ensure that the company no longer relies on government bailouts.
But, according to government, debt relief alone will not solve Eskom’s problems. Government says that its plans for Eskom’s debt is, therefore, just part of a comprehensive approach.
“While the utility has made progress in unbundling, which remains critical to its long-term sustainability, several underlying challenges must be addressed,” Finance Minister Enoch Godongwana said in a statement.
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The National Treasury is leading a process to finalise a debt relief programme designed to restore Eskom to efficiency and financial sustainability.
The specifics of the programme, including the selection of the relevant debt instruments and the method of effecting the relief, are still being finalised – though Godongwana did allude to the fact that the initial work around the programme is officially done. He said that final and more precise figures around the amount that will be allocated will be communicated.
The programme will include strict conditions required of Eskom and other stakeholders before and during the debt transfer. These conditions will address Eskom’s structural challenges by managing its costs, addressing arrears due to the utility, and providing greater clarity and transparency in tariff pricing.
In addition, the conditions will be informed by an independent review of Eskom’s operations.
Godongwana said that the financial support to State Owned Enterprises recognises their potential to contribute to long-run growth prospects.
As such, R2.9 billion was allocated to Transnet to ensure the return of out-of-service locomotives. This will be complemented by the R2.9 billion from in year spending adjustments to deal with flood damage that affected its operations in eThekwini.
There was also the allocation of R204.7 million for Denel to reduce contingent liabilities arising from its weak financial position and R3.4 billion – if set conditions are met – to complete its turnaround plan.
R23.7 billion was allocated to Sanral to pay off government-guaranteed debt, conditional on a solution to phase 1 of the Gauteng Freeway Improvement Project.
Godongwana said that the uncertainty around the Gauteng Freeway Improvement Project continues to have a major negative implication for road construction in the country.
He confirmed that to resolve the funding impasse, the Gauteng provincial government has agreed to contribute 30% to settling Sanral’s dent and interest obligations, while national government will cover the 70%.
Government proposed to make an initial allocation of R23,7 billion from the national fiscus, which will also be disbursed on strict conditions.
Because Gauteng will also cover the costs of maintaining the 201 kilometres and associated interchanges of the roads, any additional investment will be funded through either the existing electronic toll infrastructure or new toll plazas, or any other revenue source within their area of responsibility.
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Aside from Sanral, Eskom and Transnet, no mention of bailouts would be provided for other State Owned Enterprises such as the Post office and South African Airways.
Godongwana said that Eskom was their main concern at present and they needed to get it to a place where it could be a self-sustainable entity.
Government expects that the main budget non-interest expenditure will increase by a net R52.4 billion in 2023/24 and R58.5 billion in 2024/25 compared with the 2022 Budget.
As such they proposed that R66.9 billion be allocated for health, education and provision of free basic services by local government, and a one-year extension of the COVID-19 social relief of distress grant.
Godongwana said the grant will commerce until March next year when it will be revised.
There was also the allocation of R8.9 billion for safety and security. Godongwana said that to date since the last budget term, they have recruited 10 000 police officers and will be recruited 15 000 more for this budget term.
Godongwana said that he was excited about the new budget as they were finally making an impact. “We are finally making progress to stabilise the public finance and reduce fiscal risks,” he said.