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- The IMF says Eskom and Transnet must be improved "decisively and quickly".
- The economy is expected to continue its recovery.
- Excess revenues should be used to reduce debt.
The IMF has completed its annual staff visit to SA urging the government to "downsize Eskom’s balance sheet and restore its commercial sustainability".
This implies support for a government takeover of Eskom debt, although the statement is not that explicit. Eskom has around R380 billion of debt, which it is unable to service. While the Treasury provides Eskom with annual cash transfers to cover debt costs, it has been reluctant to take Eskom debt on to the sovereign balance sheet.
However, it is increasingly likely that Finance Minister Enoch Godongwana will make an announcement on Eskom debt in the medium-term budget policy statement in October.
Says the IMF:
In a statement responding to the IMF report, the Treasury said it was "working on a sustainable solution to deal with Eskom’s debt in a manner that is equitable and fair to all stakeholders. Any solution will be contingent on continued progress to reform South Africa’s electricity sector and Eskom’s own progress on its turnaround plan and its restructuring".
The IMF says that the "operations, finances and governance of Eskom and Transnet need to be improved decisively and quickly, as these are key obstacles to private investment and growth".
READ | Will Transnet be the next Eskom? Industry warns rail is in free fall in SA
The IMF also expresses concern about Transnet, which it says "needs to restore the operational capacity of the freight rail system and improve the efficiency of its ports". This should include accelerating reforms that attract private sector investment.
The IMF staff report suggests that Treasury make use of the ongoing revenue windfall from high commodity prices to reduce debt and rein in unproductive fiscal spending to put the debt-to-GDP ratio on a declining path and boost confidence.
It expects the economy to continue its recovery after the pandemic as lagging sectors – tourism, hospitality and construction gradually catch up. Mitigating the impact of Covid-19 and recent floods, and preserving well-targeted social outlays, are key priorities.
The SA Reserve Bank "will be indispensable" to keep inflation expectations anchored.
READ | Budget 2022 | 'Action first': Eskom must sell coal assets before getting more money from govt
The Treasury statement again confirms its stance at the February budget that "any permanent increases in spending will be financed in a way that does not worsen the fiscal deficit".
Government remained committed to restoring sustainability to public finances, it said, which has been supported by better-than-expected revenue collection, albeit temporary, and fiscal restraint.
"As stated in the 2022 Budget, government is using a portion of the additional revenue to reduce the fiscal deficit and stabilise debt, with the majority targeted to address urgent social needs, promote job creation through the presidential employment initiative, and support the public health sector."
Other priorities, it added, include faster implementation of economic and SOE reforms, accompanied by fiscal consolidation to provide a stable foundation for growth, easing of investor concerns, and support a faster recovery and higher levels of economic growth.
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