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The government is constantly trying to balance the books. This means that they are always looking for additional sources of money to accommodate competing needs. To do this they have a number of mechanisms at their disposal. They can increase taxes (which tends to be unpopular), they can reduce expenditure in other areas, they can borrow from the private sector and they can guarantee the borrowings of parastatals like Eskom or SAA. By providing a guarantee, the government enables that state owned enterprise to borrow from the private sector - which means that they do not have to actually inject the funds themselves. There is a limit to how much the government can guarantee before it becomes seen as a bad risk - by the commercial banks and other institutions lending the money, and also by the ratings agencies. The South African government has given almost R500bn in guarantees to various state agencies, more than half of that to Eskom - and this has been a major factor in the downgrades by Fitch, Standard & Poors and Moodys (the ratings agencies) of our currency and government debt.

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