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By Siphelele Dludla 
Oct 26, 2020
JOHANNESBURG – Finance Minister Tito Mboweni appears poised to announce more capital transfers to state-owned enterprises (SOE), especially SAA, when he presents the Medium-Term Policy Budget Statement (MTBPS) next week.
However, concerns have been raised about the state’s ability to provide more bailouts to troubled state-owned companies amid the expected rise in public debt.
This year’s spending requirements and the impact of the Covid-19 pandemic are expected to put heavy pressure on the already strained treasury.
Public Enterprises Minister Pravin Gordhan told the media last week that a Cabinet decision had authorized the provision of R10.5 billion to cover SAA’s restructuring costs.
Gordhan assured the public that the differences between him and Mboweni over the financing of SAA had been overcome after months of disagreements over the bailout.
Anchor Capital investment analyst Casey Delport said Mboweni’s budget would provide a clearer idea of SAA’s fate.
“This will set the tone for other SOEs in the sense (of whether) government support still exists and whether the government will continue to spend more taxpayer money on bankrupt state enterprises,” Delport said.
“Continued injections into SAA underscore the risks posed by state-owned companies, and the pressure to increase pro-poor spending remains significant.”
Mboweni warned in June that gross national debt would be close to 4 trillion rand, or 81.8 percent of gross national product (GDP) by the end of this fiscal year.
The consolidated budget deficit is forecast to be R761.7 billion, or 15.7% of GDP in 2020/21.
Social and welfare subsidies, the public sector wage bill, debt service costs and capital transfers continue to be the main items of expenditure that weigh on the treasury.
Econometrix director and chief economist Dr. Azar Jammine said in an interview that markets would look “very closely” at the issue of transfers in the budget.
Jasmine, however, said investors had welcomed President Cyril Ramaphosa’s commitment that the government would promote greater private sector involvement in state-owned companies.
Ramaphosa said last week that the government would reduce the dependence of state-owned companies on the treasury by stabilizing strategic companies, accelerating their rationalization and identifying strategic partners where appropriate.
Jammine said this could mean that Mboweni could avoid making huge and unexpected transfers to state-owned companies, as investors would be happy to participate if given the opportunity.
“I don’t see the government allocating more than normal to SAA,” Jammine said.
“Ramaphosa talked about strategic equity partners or listing some entities. In that case, they won’t do much good. “
Jammine, in fact, said that Mboweni could afford to take a risk and increase spending on state-owned enterprises and social welfare slightly within a certain budget deficit threshold. Mboweni is expected to provide a framework for fiscal consolidation, debt reduction and shifting priorities. “Mboweni will be forgiven if the debt deficit can go up to 16.5 percent, that’s about R30 billion. Unless the budget deficit reaches significantly 20 percent of GDP, that will be unsustainable, “he said.
“You worry about the debt after the war. As for the social relief of emergency subsidies, personally I believe that the government has no other option at this time than to continue (with them), although the fiscus cannot carry it. “
SAA has been on business bailout since December 2019 and suspended its operations in late March when the country locked down to curb the spread of Covid-19.
Last month, SAA rescuers suspended all operations immediately as talks continued with the government about funding R10.4bn for the airline’s immediate short- and medium-term operations.
BUSINESS REPORT
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