South Africa May Boost Borrowing Needs to Fund Eskom Rescue

(Bloomberg) -- South Africa may increase its borrowing plans following the latest bailout announced for struggling state-owned power utility Eskom Holdings SOC Ltd., Finance Minister Tito Mboweni told lawmakers Tuesday.

• Eskom, seen as the biggest threat to the nation’s economy, will get an additional 59 billion rand ($4.2 billion) spread over two years.

Key Insights

• Mboweni reiterated that the aid, combined with lower expected tax revenue, will come at a significant cost to taxpayers. Still, President Cyril Ramaphosa’s government is under pressure to show it’s got a plan to deal with Eskom as the utility struggles under more than 440 billion rand of debt.
• An increase in government debt to help Eskom could raise the risk that the country loses its sole remaining investment-grade credit rating from Moody’s Investors Service. The minister’s warnings that the government may miss its revenue collection target and have to change its borrowing plans before the mid-term budget in October and its other spending plans may further spook financial markets.
• The government is urgently working to stabilize Eskom, which needs the aid to meet its financial obligations this year, while working on a broad strategy for its future, Mboweni said. Eskom is not financially sustainable as it stands, he said.

Related Coverage

• South African Ailing Power Giant Eskom to Get Extra $4.2 Billion
• South Africa Set to Name ‘Bad Cop’ to Oversee Eskom Rescue
• These Charts Show How Much Trouble Eskom Is In

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