South African power utility Eskom is currently engaged in discussions with the World Bank to raise up to $3-billion for its expansion programme, Director-General of the National Treasury Lesetja Kganyago told I-Net Bridge on Tuesday.

"These alternatives are taking place," he said in answer to a question on whether government is looking to alternatives to raise money rather than saturating the local capital market.

In fact, Kganyago feels that a crowding out of capital is not yet taking place in the local market, but that the lower cover ratios (of around 2.5 times the amount offered) currently being seen will be monitored going forward.

"Eskom and (transport parastatal) Transnet had utilised export credit agencies for funding as we do not want to put undue pressure on the domestic market," he added.

Kganyago also said that another alternative to local borrowing had been the increase in offshore capital raising to $2-billion instead of $1-billion.

Not to borrow from World Bank

"We will not be back during the course of this year — we did an extra R500-million as we could see revenue was lagging the Budget," he explained.

"It is not an easy thing to borrow from the World Bank — and we decided not to — but we allowed our state-owned enterprises to go to the World Bank," he said.

He said Eskom has a facility for $2-billion from the African Development Bank.

"The domestic market had been hungry for paper — otherwise such a large amount would have meant bond yields would have gone higher [weaker]," he said.

"Institutional investors are also sitting on a lot of cash," he added. He noted too that corporate issuance had been increasing and foreigners were getting more active in the local market again via portfolio flows.

"We are not complacent with increasing government borrowing requirement as it puts pressure on other borrowers in the economy, and this is why we are winding it down in the next three years," he said.

Higher financing requirement

As a result of the higher financing requirement of government and the non-financial public enterprises, South Africa's public sector borrowing requirement is expected to widen to 11.8 percent of GDP in 2009/10 from a projected 8.0 percent in February, it was revealed by Treasury on Tuesday.

While government's borrowing moderates somewhat over the medium term, the significant infrastructure programme of the non-financial public enterprises means that public sector borrowing will average about 9.7 percent over the next three years.

Treasury said in the introduction to its Medium Term Budget that while it has had the fiscal space to run a significant deficit to support the economic recovery, a phased moderation of the borrowing requirement will be required over the medium term.

The data showed the public sector borrowing requirement lifting to R284.5-billion from a projected R197.8-billion in February. It then goes to R294.4-billion in 2010/11, but falls to R270.1-billion in 2011/12. It is projected at R260.8-billion in 2012/13.

As a percentage of GDP the borrowing goes from 11.8 percent in 2009/10 to 11.2 percent in 2010/11, 9.4 percent in 2011/12 and 8.4 percent in 2012/13.

I-Net Bridge

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