Support for Eskom threatens govt spend and debt, MPs hear

2019-02-19 13:43 - Lameez Omarjee
Electricity pylons

Government's financial support for Eskom will put pressure on the state's ability to maintain the expenditure ceiling, and may have implications for government debt, members of Parliament have heard.

The Parliamentary Budget Office held a pre-Budget briefing on Tuesday with the standing committees on finance and appropriations, as well as their select committees.

Reforms for state-owned enterprises, specifically Eskom, could impact the country's ability to meet estimates on debt over the medium term, PBO economic analyst Rashaad Amra told the committees.

Government has managed to maintain the fiscal ceiling for the past seven years.

"There are certain expenditure pressures presented in last year's budget like [fee-free] higher education, which required adjustments to the budget estimated in the medium-term budget policy statement in 2017," Amra said.

This year Eskom would be the source of pressure. President Cyril Ramaphosa said in his State of the Nation Address that the power utility would be unbundled into three entities, and that government would provide support to its balance sheet in an effort to stabilise its finances.

"If government attempts to maintain the ceiling; where would additional resources be made available from?" Amra asked. Secondly, if government is "unable" to "make space" in existing expendiutre allocations for fiscal support to Eskom, this could result in additional debt being issued, he warned.

"This will have implications of debt as a share of GDP over the medium term," he added.

The gross debt estimate for the 2018/19 fiscal year was revised in the mini buget to be 55.8% of GDP.

Poor growth, poor revenues

The PBO also shared views that Treasury would revise down the economic growth outlook for the year, in line with downward revisions of the global economy.

Amra highlighted that over the past six years since the National Development Plan was launched, growth has been significantly lower than the 5.4% target, averaging below 2%.

This has had implications on the ability of the country to meet socio-economic objectives, he explained.

The poor state of the economy will be reflected in poor tax revenue collection, Amra said. the mini budget downwardly revised the National Budget estimates of a shortfall by R22.8bn. The PBO estimates a further R19.5bn shortfall, relative to Treasury's estimates in the 2018/19 mini budget.

The shortfall is mainly due to a shortfall in revenue collections from corporate income tax, personal income tax and VAT refunds.

The shortfall in corporate income tax is mainly driven by the weaker economic environment and lower profitability, while the shortfall in personal income tax is related to slow employment growth and slow remuneration growth, he explained.

The National Budget is expected to be tabled before Parliament at 14:00 on Wednesday. 

*Corrections: This article was updated at 15:20 on Tuesday February 18, 2019 to accurately reflect debt estimates and shortfall estimates in quotes attributed to Amra.