The good, the bad, and the Eskom
In his annual Medium Term Budget Policy Statement (MTBPS), Finance Minister Enoch Godongwana had some good news, some bad, and when you think of Eskom and economic growth, some ugly news. Here is the story in four graphs.
The good news
It’s always great when you’ve made more money than you budgeted. Treasury attributes their windfall to “. . a broad broad-based recovery in corporate tax collections, which bodes well for receipts over the remainder of the fiscal year.”
Nicolaas van Wyk, CIBA’s CEO, advised that government should spend any excess tax revenue on reducing the budget deficit. The MTBS noted, “A portion of higher-than-anticipated revenue collection will be used to continue reducing the budget deficit.”
The MTBS also stated that the next budget would allocate more money to the National Prosecuting Authority, the Special Investigating Unit, the Financial Intelligence Centre and SARS to fight corruption. “These resources will help the institutions to identify sophisticated financial crimes, prosecute offenders, and recover money and assets that are the proceeds of fraud and corruption.”
Van Wyk welcomes the focus on funding key institutions. “Many world-class individuals are working in state institutions. It’s crucial that government makes sure they’re well funded if we’re to weed out the corruption damaging the whole country.”
The recent windfall has helped the key debt-to-GDP ratio to finally stabilise. Government debt is now growing at roughly the same rate as the economy.
The bad news
“These achievements [debt consolidation] will enable the government to begin rebuilding fiscal space and renew real spending growth in key policy areas that support the economy,” says the MTBS. “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.”
However, slowing down the growth of the debt mountain, the government will still be forced to spend a significant portion of its budget servicing debt in the medium term, with many of the bonds coming due in the next few years.
“A portion of the maturing debt will have to be refinanced, which places significant pressure on capital markets, raising borrowing costs across the economy,” states the MTBS. “Moreover, higher debt redemptions increase the risk that changes in demand for government bonds, a depreciation of the rand exchange rate and/or higher borrowing rates will override the benefits of a lower budget deficit.”
According to Treasury’s figures, debt service costs are anticipated to grow faster than overall government expenditure in the next few years.
The ugly
“South Africa’s economic growth rate is far too low to address its poverty and unemployment challenges. Rapid and decisive action is needed on reforms to lift the economic growth rate,” according to the MTBS.
"We will work with government, civil society, and business and deploy an army of accountants,” says Van Wyk. SAIBA wants to grow and deploy an army of accountants to all parts of the economy to try and unlock growth wherever possible.
“In times like these with demands for more spending but a dwindling tax base, the government should conduct an in-depth review of its financial statements. Accountants as financial analyst, and in their role as management accountants are capable of assisting state departments, organs of state and State Owned Enterprises with identifying costs savings. Chartered Institute for Business Accountants (formerly SAIBA) therefore proposes the appointment of a special task force consisting of expert accountants in the field of financial and data analytics, with the task of performing an analysis of all government financial statements and data. " If all other doors are closed, FP&A can reveal inefficiencies and this may be the only way to solve the puzzle of doing more with less.”
“At our Practice Management Conference this week (2-3 November 2022), we will be looking at the opportunities for jobs and growth and how we can assist in several large sectors where we believe accountants can play a key role in unlocking growth.”
“Eskom is the biggest known risk to the economy and the public finances,” says Treasury which is still working out exactly how it will assist. The Minister indicated that government would take on a portion of Eskom’s R400 billion debt to allow the utility to restructure, although it would apply strict conditions.
In response to parliamentary questions yesterday, treasury official Duncan Pieterse told MPs that selling off non-core assets and making operational improvements would be conditions of the debt adoption.
What portion of the R400 billion Eskom debt Treasury will assume remains unclear.
