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Government's plans to steady the precarious financial position of debt-laden power utility Eskom are expected to take centre stage on Wednesday afternoon, when Finance Minister Tito Mboweni delivers his maiden Budget speech to Parliament.
The Budget address will be delivered at 14:00 and will be livestreamed on Fin24.
Here are some of the things to look out for.
Eskom
Eskom, which produces over 90% of SA's electricity, has a debt burden of roughly R420bn and does not make a profit from selling electricity at current prices.
The outsized role that Eskom plays in the SA economy was again underlined by Minister of Energy Jeff Radebe on Tuesday, as he addressed an energy conference in Johannesburg. "We have to instill confidence in our ability to provide reliable power, lest we undermine the efforts of President Cyril Ramaphosa to entice investment into our country," he said.
The power utility's financial position is being closely monitored by rating agencies and investors, who view it as the most immediate problem facing SA's economy.
Years of low economic growth, coupled with concerns over SA's debt-to-GDP ratio and projections of more tax collection shortfalls, mean that Mboweni has limited space to manoeuvre in granting state aid to Eskom, which has asked for a R100bn in government support.
In his recent State of the Nation Address, President Cyril Ramaphosa announced that government would "support Eskom’s balance sheet", saying that Mboweni would provide further details in the Budget.
"This we will do without burdening the fiscus with unmanageable debt," said Ramaphosa.
Making the grade
Moody's Investor Service is the sole major ratings agency to have SA’s sovereign debt at above investment grade. It currently has SA's debt at Baa3 with a stable outlook, or one notch above junk status.
In a pre-Budget commentary, Moody's said state financial support to Eskom would be credit neutral if it were "accompanied by measures that durably stabilise [Eskom's] financial health". However, the announcement of financial support without announcing additional savings measures would be credit negative for South Africa.
Moody’s and investors will be closely monitoring what type of financial support Mboweni announces. The minister may announce that government is taking over a portion of Eskom's debt, that it is taking over some of its debt interest repayments, or some kind of debt swap.
While investors and ratings agencies want certainty on operational plans, it is unlikely that Mbownei will touch on these, according to Peter Montalto, head of capital markets research at Intellidex.
"[…] Mboweni is not about to discuss load shedding or operational issues and will not, in our view, give any details on the split or how debt allocations under the new umbrella co-structure would work," said Montalto in a note.
It was also unlikely that there would be major announcements regarding support for other SOEs, he added.
"We see SAA not getting any further money than the R5bn allocated at the mini budget, which was less than asked for. Debt restructuring is ongoing with banks and we expect progress on this to be included in the budget," he said.
Tax increases
In 2018 former Finance minister Malusi Gigaba announced that VAT would be increased by one percentage point to 15%, the first increase in two decades. Few analysts expect a similar announcement this year.
In the view of economist Sanisha Packirisamy of Momentum Investments, an additional increase in the VAT rate would be difficult in an environment of low growth and cash-strapped consumers.
But Mboweni is likely to announce tax increases in one form or another, particularly in light of an expected shortfall in tax collection by the SA Revenue Service, as Bloomberg has reported.
Sin taxes are expected to go up, while tax brackets may be massaged upwards, although the state may again keep lower rackets unchanged to provide a measure of relief to low earners.
"While the middle and lower tax brackets may see adjustments closer to inflation, the upper tax brackets will possibly see some upward adjustment, but not too much," David French, director of tax consulting at Mazars, told Fin24 earlier in the week. "Something like this also usually bodes well for Treasury’s public perception, since it seems like they are looking out for the lower income classes."
Mboweni will likely also announce increases to the Road Accident Fund levy.
Then there is the possibility that Mboweni may announce that government has broadened its list of VAT free items.
Public Sector wage bill
With the government on the lookout for savings, some analysts have again proposed that the state should announce measures to cut its public sector wage bill.
CEO of the Johannesburg Stock Exchange, Nicky Newton-King, previously told Fin24 that Mboweni should use the Budget to explain what measures Treasury is taking to contain wages, which stand at 35% of government’s consolidated spending. Mboweni previously said the "sweet spot" is below 30, which angered trade unions concerned about job losses.
With the Budget being delivered only three months before an election, any moves to cut back on the public sector wage bill will be strongly criticised by the ANC's tripartite ally Cosatu and other trade unions.
Cosatu has already slammed a "wave of retrenchments [...] decimating workers in the private sector and now potentially in the public sector" as a "betrayal of the working class" in its pre-Budget commentary.
Initiatives to boost growth
SA growth is still well below that of its emerging market peers and near the bottom of African countries. According to a recent World Bank projection, SA's economy will expand by only 1.3% in 2019, putting it among the worst performers in sub-Saharan Africa.
Mboweni will have to lay out some plans for boosting growth.
At 1.3%, SA’s projected real economic expansion will come in at under a third of the estimated 4.2% growth rate of its emerging market peers.
Business Unity SA said in a pre-Budget opinion piece submitted to Fin24 that Mboweni would need to set out a feasible plan for economic growth, as he has little room to inject stimulus into the economy.
"Foremost among this will be to assure investors of the country’s continued commitment to property rights, in the context of the discussion around expropriation without compensation, as well as to the independence of the Reserve Bank and the retention of inflation targeting," said BUSA.
* Correction: Fin24 referred to the comment by BUSA as pre-Budget commentary, rather than an opinion piece in an earlier version of this article. The article has been updated to reflect this.
