Infrastructure investments to enhance growth will be a focus of the finance minister’s medium-term budget speech, with the Treasury finalising a credit guarantee scheme designed to attract private capital into investment in SA’s transmission infrastructure, deputy finance minister David Masondo revealed on Monday.
Masondo was speaking at the SA Tomorrow investor conference in New York. He made it clear he could not say much ahead of Wednesday’s budget, but said it would again be based on the pillars of running a primary budget surplus and containing costs, and the importance of reducing debt to a sustainable level in the interests of economic growth.
The budget would seek to do fiscal consolidation in a way that would not harm growth and would enhance investment, particularly in infrastructure, and the minister would be speaking of the need to shift expenditure into infrastructure, he said.
The Treasury was working to find creative ways to derisk private investment into infrastructure, with SA’s electricity transmission grid as a starting point, Masondo said. About $500m was needed. The new credit guarantee vehicle, which the Treasury is putting together, would derisk the challenges associated with private capital being invested in transmission infrastructure, and later into other infrastructure.
‘Solid scheme’
“It is a very solid scheme and we will use it as a pilot, starting at the transmission level, and if it is successful we intend to extend it to other infrastructure programmes be it rail or other economic infrastructure,” Masondo said. The Treasury planned to go on a roadshow on the new scheme.
Electricity minister Kgosientsho Ramokgopa said the credit enhancement instrument that the government was looking at would not encumber the sovereign balance sheet or that of the new National Transmission Company.
SA had a template from the Renewable Energy Independent Power Procurement Programme that it could export to new independent transmission providers, he said.
Eskom CEO Dan Marokane, who was due to speak at the New York conference, said that unplanned outages had fallen below 7,300MW for the first time in four years, with Eskom now having avoided load-shedding since March 26. At their peak in the worst days of load-shedding unplanned outages hit 18,000MW.
Masondo said the Treasury was looking at reforms to create conditions for private sector investment into infrastructure in SA’s metros. It was looking particularly at the trading entities in the metros — in waste, energy and water — to enable them to become independent from municipalities in a way that could enable private infrastructure investment.
Debt costs
Most of the world was experiencing low growth and high debt and SA sought to get out of its low growth and put debt on a sustainable level. Debt costs, at 6% of GDP, were already crowding out more important government spending and the money being borrowed should be going to entrepreneurial activity, instead of crowding out private investment.
High debt was also raising SA’s sovereign risk premium, though this has fallen since the government of national unity “indicating the political structure we have put in place is in the interests of economic growth”, Masondo said.
Economists expect finance minister Enoch Godongwana to table a budget showing the government is on track to run increasing primary budget surpluses and to stabilise the public debt at about 75% of GDP in the next fiscal year.
Some expect it could even outperform Treasury’s fiscal forecasts — and that if SA can lift its growth rate and build a track record of delivering on its promises of fiscal consolidation, the international ratings agencies could start looking to ratings upgrades.
“Improving growth dynamics, which feed into better fiscal metrics and a stabilisation in debt, may drive expectations of a sovereign credit rating upgrade in the coming review period,” RMB Morgan Stanley economist Andrea Masia said in a recent note. “While debt levels are still higher than the BB peer group, the direction of travel is clearly positive and may support the case for an outlook change (to positive) from some agencies.”
The next S&P review is scheduled to be released on November 15. Fitch and Moody’s do not have scheduled dates but the Treasury has said it will be speaking to them as usual after Wednesday’s budget.
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