Cape Town – Treasury highlighted increasing guarantees for state-owned enterprises (SOE) as a “source of vulnerability” on the fiscus that requires close attention.
“The global financial crisis exposed vulnerabilities in public finances around the world, and triggered debt crises among seemingly solvent governments,” it said in its mini budget statement.
“Much of the increase in public debt stemmed from … choices by public agencies and state-owned companies that committed national budgets to implicit guarantees, without following normal budget processes, such as the pursuit of loss-making mandate.”
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Government’s major explicit contingent liabilities are its guarantees, which stood at R469.9bn at the end of 2015/16, it said. Total guarantee exposure was R263bn at the end of 2015/16. This was “because several entities had not fully used their available guarantee facilities”.
“The outlook for contingent liabilities is also a source of vulnerability,” it warned.
The largest guarantee exposure – more than R170bn – supports Eskom’s capital investment programme. Eskom was battling financially after its disastrous new build programme, which included Medupi and Kusile coal power plants and Ingula water-pumped storage.
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“The most recent recapitalisation – combined with governance reforms and operational recovery – has improved Eskom’s liquidity and profitability,” it said.
An exposure of R200bn relates to the IPPs, but Treasury was not concerned about this. “The risk of default with the IPP guarantee is low as the regulator fully provides for IPP costs in the Eskom tariff determinations. These factors mitigate the risk arising from these guarantees.”
However, it did warn that a “deterioration in Eskom’s financial position would increase the risk of both exposures”.
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