eskom load shedding

Photo: Ashraf Chemban from Pixabay

Treasury will increase bond auctions to fund Eskom tax deficit

The deficit in the Treasury is expected for a further widespread decline, because of the life-line extended to Eskom.

eskom load shedding

Photo: Ashraf Chemban from Pixabay

The deficit in the Treasury is expected for a further widespread decline, following the Minister of Finance in the special appropriation bill speech, aiding Eskom with an R59 billion life-line.

Eskom’s financial aid is costing the country

The embattled power utility seems to be costing the country as state-funded projects are in trouble; as the government is scraping around each department to come up with the sum.

Financial aid supporting Eskom and the preliminary indication of tax revenue shortfall relative to 2019 Budget has resulted in a revised funding strategy and an increase in government borrowing requirement for 2019/20 fiscal year.

What are the new fixed-rates?

In one accord with the announcement made by Mboweni in the special appropriation bill speech on 23 July 2019. The National Treasury revealed an increase in the fixed-rate and inflation-linked bonds weekly auction levels.

Tito Mboweni Cyril Ramaphosa
Minister of Finance Mr Tito Mboweni presenting his 2019 Budget Speech during the Plenary of the National Assembly , 20 February 2019. Parliament, Cape Town. – Photo: Elmond Jiyane, GCIS

The fixed-rate bond auction amount will increase by R1.2 billion, from R3.3 billion to R4.5 billion. The inflation-linked bond auction amount will increase by R280 million, from R760 million to R1.04 billion.

There shall be no further switch auctions for the rest of the 2019/20, as the National Treasury is currently reviewing its bond switch auction programme.  In line with recent issuance patterns, the National Treasury remains committed to shortening the average maturity per auction for fixed-rate bonds. The increase will be effective for the fixed-rate and inflation-linked bond auctions as of 06 August and 16 August 2019 respectively. 

National Treasury

What does it all mean?

In essence, the Treasury plans to implement an increase in the size of its weekly bond auctions to further fund Eskom’s bailouts and an expected shortfall in tax collections.

The latest allocation for the bailout is sourced from the government’s National Revenue Fund, which provides R26-billion for the 2019/20 financial year and R33-billion for 2020/21. Eskom, which has R440billion in debt and made a loss of R20.7 billion for the past financial year, is a major risk to the South African economy and the country’s public finances are taking credit crunch.

The increase assessed multiple factors from the Eskom support, possible revenue shortfall and prefunding to meet commitments that might be mismatched to revenue flows. 

The frontloading of the financial support given to Eskom is in line with the President’s announcement in the June State of the Nation Address. It is a partial early disbursement of the R230 billion commitment announced in the Budget 2019, not additional support.

National Treasury