Close But No Cigar – Post Budget Speech Analysis

By Thabiso Mofulatsi


The Budget highlighted the government’s commitment to fiscal consolidation. A budget proposing an Eskom total debt relief arrangement of R254 billion and an R903 billion projected spend over the medium term on Infrastructure. However, mute towards the new electricity minister and the national state of disaster


On 22 February 2023, Minister of Finance, Honourable Enoch Godongwana, took the nation through the National Treasury’s budget review for 2023/24 and the medium term amidst stage-6 loadshedding, stagnating economic growth, rising interest rates, high inflation, food and fuel, influencing the cost of living for all South Africans. The Minister had a challenging task on his hands to provide a budget of strength and resilience that would lead South Africa out of darkness and reduce the impact of Eskom on all South Africans.


However, although he indicated measures to absorb Eskom’s financing and debt issues through the Eskom debt relief arrangement and various tax incentives for households and businesses installing Solar assets, the Minister failed to fully inspire the country in terms of how South Africa will regain energy security through the eradication of load-shedding in the short-term and ending the national state of disaster declared by the President Cyril Ramaphosa on 9 February 2023.


Economic Outlook

National Treasury lowered its growth forecasts as load-shedding dimmed the economic growth outlook. Real GDP is expected to slow to 0.9% in 2023 from an estimated 2.5% in 2022 before averaging 1.7% per annum in 2024 and 2025. The economic outlook is more optimistic than the South African Reserve Bank’s 2023 growth of 0.3% mentioned in January. In addition, emerging and developing countries are expected to grow 4.0x faster than South Africa in 2023 as the government continues to combat extensive loadshedding and logistics constraints.


Figure 1: Global’s economic outlook


Budget Revenue – Deficit

The South African government projects a slightly slower rate of revenue growth of 3.5% in 2023/24 due to higher inflation and favourable commodity prices dissipating. Revenue growth estimates for the next two fiscal years remain unchanged. Gross tax revenue exceeded 2022 Budget estimates by R181.9 billion, primarily driven by strong performance in corporate income tax, pay-as-you-earn, and value-added tax. From the Budget, we assess the National Treasury is committed to expenditure consolidation, but higher wage bills are expected to breach current expenditure targets as public sector unions demand higher wage settlements. Expenditure growth is expected to average 4.5% per year between 2023/24 and 2025/26. The government increased allocations for social spending by extending the Social Relief of Distress grant by another year to March 2024 and allocated funds for South African Airways, the South African Post Office, and the Land Bank. A loan of R254 billion was also allocated for Eskom, which will be converted to state-owned equity if the corporation meets set conditions.


Public Infrastructure Expenditure

Public‐sector infrastructure spending over the 2022 medium-term expenditure framework (MTEF) period is estimated at R812.5 billion. State‐owned companies continue to be the most significant contributor to capital investment, spending a projected R251.7 billion over the next three years.


Despite the means of reducing South African debt, South Africa’s debt service costs remain a significant challenge. The National Treasury expect that in the medium term, debt service costs would amount to approximately R1.1 trillion.


Figure 3: Infrastructure expenditure

The National Treasury announced that in the medium term, they planned to spend an estimated R903.0 billion focused on Infrastructure, the Infrastructure Fund’s main goal is to attract private-sector investment in government projects and facilitate early financial closure.


Mahlako is pleased to note that one key initiative to assist with the dependency of Eskom and load-shedding mitigation includes the Renewable Energy for Public Buildings programme, costing an estimated R55 billion. The Integrated Renewable Energy and Resource Efficiency Programme (iREREP) project aims to ensure the security of supply, socio-economic development and environmental sustainability by procuring renewable energy for government buildings, including hospitals, prisons and police stations etc.


Tax Initiatives

The Minister of Finance announced in the Budget that the individual tax brackets would be adjusted for inflation and the retirement tax tables would be changed. There will be a relief for households installing solar panels and no increase in fuel levies. Individuals who install new or unused solar PV panels on their private residences will receive a rebate of 25% of the cost, up to a maximum of R15,000 per person. The rebate will be subject to certain qualification criteria and will not cover inverters or batteries.


In addition, the government plans to encourage private investment in renewable energy by increasing the capital allowance for qualifying investments made between 1 March 2023 and 28 February 2025. Taxpayers will receive a 125% allowance of the cost of qualifying investments in the first year the asset is used. There is no limit to the maximum budget claimed. Additionally, to incentivize rooftop solar and address energy-related constraints faced by small and medium enterprises, the government will guarantee solar-related loans for these businesses on a 20% first-loss basis through the Energy Bounce Back Scheme, set to launch in April 2023.

Although these initiatives and incentives will see an increase in business investment in solar projects, National Treasury could have reduced import duties on solar assets.


Eskom Debt Relief

The South African government is proposing a debt-relief arrangement for Eskom, covering R254 billion of its debt over the next three years, with strict conditions to safeguard public money. Eskom’s debt position is not sustainable, and the current approach of providing R230 billion over ten years does not sufficiently address Eskom’s underlying solvency or liquidity challenges. The debt-relief arrangement will be financed through the R66 billion medium-term expenditure framework (MTEF) baseline provision announced in the 2019 Budget and R118 billion in additional borrowing over the MTEF period.


Funds will be advanced when Eskom’s debt settlements fall due on an annual basis, and the advance of funds will take the form of an interest-free subordinated loan, to be settled in Eskom shares rather than cash. Eskom will commit to adhering to conditions set by the government within three years, commencing from the date of the first advance, and quarterly meetings will take place to discuss progress.


Eskom’s capital expenditure is restricted to transmission and distribution, and no other greenfield generation projects will be allowed during the debt-relief period.


The government is taking urgent steps to reduce load-shedding in the short-term and transform the energy sector through market reforms for long-term energy security. The National Energy Council of Ministers (NECOM) aims to improve electricity availability and facilitate investment in generation capacity, with plans to add 6,484 MW to the grid over the next 24 months.


Short-term actions include improving Eskom’s plant performance, clearing regulatory obstacles, and supporting the rollout of rooftop Solar. In the long-term, the government plans to restructure the electricity industry by unbundling Eskom into separate entities for generation, transmission, and distribution and establishing the National Transmission Company of South Africa as a separate subsidiary.



South Africans were expecting the Finance Minister to discuss in detail how Treasury would play a role in terms of the national state of disaster declared by the President as well as provide a detailed role of the electricity Minister. It is yet to be seen whether Eskom will adhere to the conditions regarding the debt relief arrangements.


The inability of Eskom to adhere to the conditions would have significant results on the economic projections and South Africa’s risk to energy security. During the Finance Minister’s speech, the ZAR/USD strengthened by 0.5%, appreciating from R18.22 to R18.13, suggesting a positive market sentiment and that the Budget was well received by investors. 10-year government bond yield decreased by 11 basis points, indicating lower borrowing costs for the government. Similarly, the JSE also experienced an uplift, with the all-share index down by 0.60% compared to being 1.0% lower prior to the Ministers’ speech.


Concerns remain whether the National Treasury’s initiatives and public infrastructure projects will aid in alleviating loadshedding whilst stimulating economic growth and job creation. This Budget was fixed on providing incentives to transform South Africa’s energy mix in the medium to long term. Though the Budget will provide fiscal stability and appease political and global parties, Mahlako would have liked to see bolder action on the energy crises with extensive energy infrastructure spend that would drive economic growth and job creation whilst mitigating the impact of Eskom and loadshedding on the economy.