South Africa’s finance minister rules out recession in 2023

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Its finance minister told Reuters in an interview on Friday that South Africa will not fall into recession this year despite the bleak outlook of the International Monetary Fund and the downturn in the last three months of 2022.

Africa’s most developed economy is in the midst of a severe energy crisis caused by the reduced ability of Eskom government utilities to meet electricity demand.

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An escalation in rolling energy cuts took a toll on activity in most sectors at the end of last year, resulting in a contraction of 1.3% in the fourth quarter. The International Monetary Fund has lowered its forecast for 2023 and now expects a slight growth of just 0.1%.

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The figures have fueled speculation that South Africa, which has suffered for years from anemic growth, could slip into recession.

Speaking to Reuters on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington, Finance Minister Enoch Gudungwana said that would not happen.

“I’m ruling out that possibility this year. We’re not going to record consecutive negative quarters. I don’t think that’s going to be possible,” he said.

He reiterated his position that the government would not offer more bailouts to state-run Eskom, although the new electricity minister told Reuters earlier this week that the country should not avoid spending to fix the crisis.

President Cyril Ramaphosa appointed Kgocincho Ramukjuba to the newly created post last month in his latest effort to achieve a breakthrough toward resolving the crisis ahead of national elections next year.

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The ruling African National Congress faces the prospect of losing its parliamentary majority for the first time since the end of apartheid in those elections.

Eskom debt

Ramukjuba, in his interview earlier this week, said South Africa needed to invest in national grid capacity. He said that if South Africa’s borrowing costs had to be higher to fund diesel purchases for emergency turbines, that was a necessary trade-off.

“I didn’t plan any metaphors to cover the kind of things he’s talking about. He didn’t discuss those things with me,” Gudungwana said.

South Africa’s Treasury said the government would take 254 billion rand ($14 billion) of Eskom’s 423 billion rand debt that was at risk of default, to enable the facility to pay debt and interest obligations.

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The finance minister said that would save about 8 billion rand in funds that Eskom would otherwise have used for debt servicing. He added that the recent tariff increase would also help and would include R7 billion in-house allowance for the purchase of diesel.

“I don’t see any rescues in the future,” Godungwana said. “What we’ve done is allowing them to accumulate enough cash flow to be able to run their operations efficiently, including optimizing maintenance.”

Godungwana said the government is open to a wide range of emergency energy options, including encouraging increased use of renewables in the private sector and portable gas or nuclear plants.

However, he said he agreed with Ramokgopa that stepping up maintenance and modernization of existing coal-fired power plants represented the best way to solve the crisis quickly.

It is a shorter term solution than building new factories. There’s no reason why you can’t supply capacity in certain areas in six months, in six to 12 months. ($1 = 18.0846 rand) (Reporting by Joe Bavier and Gorgelina do Rosario; Editing by Paul Simao)