Godongwana rules out recession in 2023

South Africa will not fall into recession this year despite a gloomy International Monetary Fund (IMF) forecast and a contraction in the last three months of 2022, its finance minister told Reuters in an interview on Friday.

Africa’s most developed economy is the midst of a severe power crisis caused by a decline in state utility Eskom’s ability to meet electricity demand.

An escalation in rolling power cuts heavily impacted activity in most sectors at the end of last year, leading to a 1.3% contraction in the fourth quarter. And the IMF has cut its 2023 forecast and is now predicting only slight growth of 0.1%.

Read all our economy coverage here.

Those figures have sparked speculation that South Africa, which has struggled with years of anaemic growth, could slip into a recession.

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

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

He reaffirmed his stance that the government would not provide further bailouts to state-run Eskom despite the new electricity minister telling Reuters earlier this week that the country should not shy away from spending to fix the crisis.

President Cyril Ramaphosa appointed Kgosientsho Ramokgopa to the newly created post last month in his latest effort to make a breakthrough towards solving the crisis before national elections next year.

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

Eskom debt 

Ramokgopa, in his interview earlier this week, said South Africa needed to invest in the capacity of the national grid. He said that if South African borrowing costs had to rise to fund diesel purchases for emergency turbines, that was a necessary trade-off.

“I’ve not planned any borrowing to cover the sort of things he’s talking about. He has not discussed those things with me,” Godongwana said.

South Africa’s Treasury has said the government will take on R254 billion of Eskom’s R423 billion debt that was at risk of default, to enable the utility to pay down the debt and interest obligations.

Read all our Eskom and load shedding coverage here.

The finance minister said that would free up around 8 billion rand in funds that Eskom would otherwise have used to service debt. A recent tariff hike would also help and included a built-in 7 billion rand allowance to buy diesel, he added.

“I don’t see any future bailouts,” Godongwana said. “What we’ve done allows them to accumulate sufficient cash flows to be able to run their operations efficiently, including improving maintenance.”

Godongwana said the government was open to a wide range of emergency power options, including encouraging a boost in private sector renewables use and mobile gas or nuclear plants.

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

“It is a shorter-term solution than building new plants. There’s no reason why you can’t bring capacity in certain areas in six months time, in six to 12 months,” he said.