By Alexander Winning, Kopano Gumbi and Wendell Roelf
PRETORIA/CAPE TOWN (Reuters) -South Africa’s fiscal outlook has improved, with deficits seen shrinking quicker than before and debt stabilising at a lower level, putting it in a stronger position for future economic shocks, the National Treasury said on Wednesday.
Under President Cyril Ramaphosa, Africa’s most industrialised nation has been trying to nurse its public finances back to health after a decade of runaway spending and steep debt accumulation.
South Africa suffered a sharp economic contraction during the COVID-19 pandemic, but its recovery has been supported in the past two years by a commodities windfall that has boosted government revenues.
Although the deficit outlook appears favourable, a government plan to take on part of struggling state utility Eskom’s 400 billion rand ($22 billion) debt is not ready, despite assurances that Wednesday’s mid-term budget would contain more details.
The Treasury confirmed it would take on some of the debt of the utility — mired in financial crisis for years and struggling with electricity outages that have reached record levels this year — but it would not commit to a specific amount or timeframe.
It said it could take on between a third and two-thirds of the debt but that it still needed to consult with lenders.
Finance Minister Enoch Godongwana told Reuters he was confident the debt transfer plan could be ready by the February budget.
Asked whether Treasury was leaning towards taking on one-third or two-thirds of Eskom’s debt, Godongwana said in an interview “of course the smaller the better,” adding the financial instruments to be used were still subject to discussion.
Moody’s already accounts for the guaranteed debt of Eskom in its consolidated government debt-to-GDP ratio, meaning no immediate implications for the country’s sovereign credit rating, it said in a statement.
The Treasury now expects a consolidated budget deficit of 4.9% of gross domestic product (GDP) in the current 2022/23 fiscal year, down from 6.0% forecast in February.
Next year, it predicts a deficit of 4.1% of GDP, narrowing to 3.9% the following year, down from 4.8% and 4.2% seen in February.
It sees gross debt stabilising at 71.4% of GDP in 2022/23, whereas in February it saw debt stabilising in 2024/25 at 75.1% of GDP.
This year’s tax revenue estimate was revised higher by 83.5 billion rand, thanks to profits from the finance and manufacturing sectors and a strong contribution from mining.
New spending announced on Wednesday included roughly 30 billion rand of new aid for state roads agency SANRAL, logistics group Transnet and defence company Denel. The government has also extended a 350 rand a month grant introduced during COVID-19 to support the poor for a further year until March 2024.
($1 = 18.0009 rand)
(Reporting by Alexander Winning and Kopano Gumbi in Pretoria, Promit Mukherjee, Bhargav Acharya and Anait Miridzhanian in Johannesburg, and Wendell Roelf in Cape TownEditing by James Macharia Chege, Tomasz Janowski and Toby Chopra)
