The annual budget South Africa unveiled on Wednesday highlighted its limited fiscal flexibility in a challenging economic environment, rating agency Moody’s said.
“The budget shows a further erosion in fiscal strength after the October medium-term budget policy statement already pointed to wider deficits for longer,” Moody’s said in a statement.
Moody’s is due to announce a ratings decision at the end of March.
Delivering his maiden budget speech, on Wednesday, Finance Minister Tito Mboweni says State Owned Companies pose very serious risks to the fiscal framework.
He says government is facing deterioration in the financial position of State Owned Companies with some struggling to stay afloat without financial assistance.
Mboweni says requests for funding were received from ESKOM, SAA, SABC and DENEL.
He says from now – government bailouts will go with tough conditions including being monitored on how the money is being used and the implementation of changes.
Eskom will face restructuring as it is not financially sustainable and cannot meet the county’s energy needs – undermining economic growth prospects and the drive to attract new fixed investments.
The power utility will be broken down in to three entities. The Eskom board is developing operation plans for each business unit, and government will give consideration to the proposals in the next three months.
The power utility will receive R23 billion per year – over the next 3 years. Mboweni stressed that government would not be taking on Eskom’s debt and it will not be privatised.
Along with Eskom, SAA, the South African Post Office and Denel required guarantees or recapitalisation in the past financial year.
Government says they are still in conversation with the SABC to see how the public broadcaster can be assisted with the R6.8 billion it requested.
The guarantees and bailouts put further pressure on the already strained fiscus.
The contingent liability posed by State owned companies has gone higher. This is in an environment where the debt to GDP ratio is increasing.
This raises the threat of South Africa being downgraded further by ratings agencies. Additional reporting by Glorious Sefako-Musi
