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By Bloomberg 
18h ago
JOHANNEBSURG – Officials at the South African National Treasury are reluctantly carrying out orders to find funds to bail out the state carrier, fearing they could erode the nation’s fiscal credibility, according to two people familiar with the matter.
The National Treasury is trying to re-prioritize funds under the medium-term spending framework that expires next month to fill the funding hole at South African Airways, said the people, who asked not to be identified because the information has not been released. made public. The money will have to come from other government departments and programs, and it may undermine efforts to revive an economy that has been hit by the coronavirus pandemic, they said.
SAA, which last made a profit nearly a decade ago and has relied on state bailouts to survive, has been in administration since December. Finance Minister Tito Mboweni has long argued that the government cannot continue to fund the national airline, putting him at odds with the top leadership of the ruling African National Congress and Public Enterprises Minister Pravin Gordhan, who insists that he must keep flying.
Mboweni lost the battle, and SAA administrators assured its creditors last week that the cabinet had pledged to provide more than 10 billion rand ($ 591 million) needed to effect a reorganization of the carrier and prevent its liquidation. Mboweni will not resign over the decision, one of the people said.
Government departments have already had to make deep budget cuts after a lockdown aimed at slowing the spread of the coronavirus brought the economy to a near halt, eroding tax revenue.
The Treasury referred inquiries on SAA to the Department of Public Companies. Gordhan said in a text message last week that the government is “scraping every barrel” to get the funding for SAA, and more clarity will be provided this week. The matter can be discussed at a cabinet meeting on Wednesday.
Bailing out SAA with state funds sends a troubling signal to multilateral investors and lenders that have helped fund South Africa’s coronavirus response, said Peter Attard Montalto, Intellidex’s head of capital markets research.
“While R10.4 billion may not be huge, it is just the beginning of what the airline needs in the next few years,” he said in a note to customers. “The government has gotten on a slippery slope.”
The main opposition, the Democratic Alliance, urged the cabinet to liquidate the SAA if it could not find investors to take over the airline and provide the financing it needed.
“It is amazing that there could be any consideration of budget cuts, which will inevitably impact front-line services like health, education and surveillance, when South Africa had to go to the IMF to borrow money.” the fallout from Covid-19, said Alf Lees, the party’s finance spokesman.
BLOOMBERG
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