While there are very few positives to draw from Finance Minister Malusi Gigaba’s maiden Medium-Term Budget Policy Statement (MTBPS), his acknowledgement that Eskom poses an “enormous risk” to the entire economy is one.
“Eskom exposes government to an enormous risk because of the size of its guarantee framework, the size of the loans and the debt it has. Obviously, if anything went bust in that regard, it would have an immediate impact on the national balance sheet. I don’t think that we will be able to step in to bail Eskom out if anything went wrong,” Gigaba said.
The Minister confirmed that a new board would be appointed by the end of November and that this new board would ensure the appointment of a credible executive management team.
Gigaba’s statement, I realise, drips with irony, given his alleged role, while Public Enterprises Minister, in appointing board members to State-owned companies who presided over the shameful decay of good governance. Their unethical behaviour facilitated the ‘capture’ of the enterprises by a politically connected elite for greedy private gain.
That moral crisis has since morphed into a credibility crisis, which, in turn, has placed the sustainability of Eskom, and other State firms, at serious risk.
Nevertheless, it is still critical that government openly acknowledges the threat posed by Eskom to government’s financial health and the economy as a whole.
This time round, it’s not about operational inefficiencies crimping growth, it’s the genuine concern that Eskom will not only consume all the debt guarantees already extended, but that those ‘contingent liabilities’ will also become real Budgetary liabilities.
Should this occur, it will be yet another setback for South Africa’s fiscal consolidation efforts. Already, the dramatic slippage confirmed in the MTBPS is more than likely to trigger additional downgrades by the credit ratings agencies this month or during the course of 2018.
However, the prognosis for government finances, economic growth and much-needed investor confidence will become even more dire should Eskom’s financial woes begin to directly contaminate the Budget and disrupt the fiscal framework.
That framework has been carefully crafted over the years to be an important, albeit insufficient and imperfect, tool of resource distribution from the rich to the poor.
There is no question that the framework is already under serious threat as a result of the widening deficit, falling revenues and an increasingly unsustainable debt burden. Any uncontrolled financial meltdown at Eskom could be enough to demolish it entirely.