There isn’t a Choice, South Africa will Have to Increase Eskom Funding

According to the National Treasury Director General Dondo Mogajane, South Africa doesn’t have a choice anymore when it comes to Eskom and will need to increase financial support, whilst pushing reforms at the state-owned power utility. 

In February, the company laden with debt was given a three-year bailout of R69 billion. However, Eskom chairman Jabu Mabuza and the finance minister Tito Mboweni have said that this just won’t be enough. 

In an interview meeting of the Group of 20 finance ministers and central bank governors in Fukuoka, Japan Mogajane said the decision is to be finalised, but there isn’t a choice. Its an issue of how much and when. 

Eskom is taking pressure as they continue to be in more than $30 billion of debt, where more than of this was guaranteed by the government. There is rumour that the state may have to take that over by a conversion into government bonds. 

Mogajane went onto say that in the next few weeks, the government will be sharing views on the kind of support and when as well as how they are going to synchronise the milestone that they are looking for. 

The director general said in return, the state would be looking for changes from Eskom. Their tax revenues are money that should have been meant for other things. 

Additional support for Eskom will probably put pressure on South Africa’s fiscal balance.  Eskom’s contingent liabilities have already been factored in by credit rating companies according to Mogajane. 

Article Source:

The Rand is Expected to Get Worse

As it stands South Africa’s rand is heading towards its worst week against the dollar since October. Amid rising political risks and concerns surrounding the country’s economic outlook, technical indicators show that more pain is on the way for the currency. 

The gross domestic product data that was released earlier this week showed that this is the worst quarterly performance that South Africa has experienced in the three months through March since 2009. 

The African National Congress is currently facing infighting within its party over the mandate of the country’s Reserve Bank, which aggravated losses, which is leaving investors questioning if President Cyril Ramaphosa has the support he needs in order to advance his reform agenda.

On top of this, state-owned companies like Eskom and South African Airways are back in the headlines, but for all the wrong reasons, which has added to investor worries. 

According to S&P Global Ratings, South Africa might not be able to continue supporting Eskom. The state-owned airline, which is currently leaderless is searching for a new chief executive as well as in discussion with the bank over their debt terms. 

On Friday, the rand fell by 1.2% and traded at 0.6% weaker at 15.0891 per dollar by midday in Johannesburg. The decline this week was then to 3.4%. 

Until real progress is made at implementing structural reforms, the South African economy will continue to have a weak underlying trend and the outlook of such will remain challenging. 

It looks like the rand does have space to fall, which is shown in the rand’s relative strength index. This is a momentum indicator that shows whether a currency is overbought or oversold. The measure is still lower than the 70 level, which would signal to some traders that the dollar is overbought. 

At 14.98, it breached the 75.4% Fibonacci retracement level and the rand may target the September high of 15.70. 

Article Source: