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Ministers will be asked to make further budget cuts to release R10.4 billion in funds for SAA’s business rescue process. Without this funding, SAA will be liquidated, heralding its demise.
When the Cabinet meets within the next two weeks, ministers will be asked to make further budget cuts on crucial service delivery programs. This will be on top of departmental budget cuts of at least 20% that were included in the June supplemental budget.
Budgets that were slashed in June include, but are not limited to, school construction, support for math and science initiatives in basic education, maintenance of provincial roads, allocation of human settlements to the poor, the reform program agrarian and rural development and allocations for gender initiatives in South Africa. crisis of violence.
More cuts are expected in similar areas, including President Cyril Ramaphosa’s state-funded initiatives to create jobs. Ministers will not be asked to cut budgets again because they suddenly believe in fiscal prudence during the Covid-19 pandemic. But they will be asked to change funding priorities to save SAA, an unproductive state airline.
SAA requires R10.4 billion to finance the implementation of its business bailout plan, which proposes to pay unsecured creditors almost R2 billion over three years, downsizing packages worth R2.2 billion to 2,000 workers and finance the restart of the airline’s flights. in January 2021.
Without this funding, the SAA’s corporate rescue professionals would declare that the airline has no prospect of rescue, paving the way for its liquidation and death.
At the end of Friday, September 25, the rescuers required a firm commitment from the Department of Public Companies (SAA’s sole shareholder) and the National Treasury, that the funds for the airline would flow from the fiscus. This commitment must also be supported by Cabinet and its demonstrable plan that the money for SAA will come from budget cuts.
Then it will be up to Finance Minister Tito Mboweni and the Treasury to make calculations and allocate to the SAA in the October Medium-Term Budget Policy Statement (MTBPS). The MTBPS is an update to the February main budget and establishes three-year budget allocations.
But rescue professionals have yet to receive a firm commitment from the government about the funds for SAA, or a detailed timeline of when the funds will flow to the airline. Instead, the government is targeting South Africa’s large commercial banks to provide short-term bridging financing of at least R10 billion, which will be backed by government guarantees. A guarantee is an agreement that the government or the treasury would pay if the SAA defaults on payments.
The financing, which will fund SAA’s short-term financing requirements, such as the payment of reduction packages, will give Treasury more time to raise cash for the entire SAA restructuring process. But it is understood that the banks, which met with public companies and Treasury officials over the weekend, are unwilling to provide further support to the SAA because it is not solvent given its dire financial situation. These conversations are ongoing.
The issue of financing the SAA has pitted the Minister of Public Enterprises, Pravin Gordhan, against Mboweni and the National Treasury. Gordhan, who wants SAA to be saved at all costs, apparently has the backing of Ramaphosa and the ANC. At the ANC lekgotla in January, it was decided to restructure the SAA and keep it as a state entity.
With Gordhan backed by Ramaphosa and the ANC, it would be difficult for Mboweni to oppose another bailout for SAA, which has enjoyed roughly R57 billion in government support since 1994. Mboweni has an irritable relationship with SAA.
A year after Ramaphosa appointed him finance minister in 2018, Mboweni said SAA should be closed. It did not make any new money available to the airline in the February 2020 and June budgets. Mboweni could live on funding from SAA’s business bailout plan, as it will be done in a “fiscally neutral” matter, meaning the funds will come from budget cuts rather than the state raising new money through sources of debt.
But Peter Attard Montalto, Intellidex’s head of capital markets research, said the SAA bailout sends a worrying signal to investors and lenders who have come to the country’s rescue during the pandemic.
“While the R10.4 billion may not be huge, it is just the beginning of what is needed in the next few years for the airline and thus the government has gotten on a slippery slope,” he said in a note to customers.
Said Alf Lees, finance spokesman for the district attorney:
“It is amazing that there could be any consideration of budget cuts – which will inevitably impact front-line services like healthcare, education and surveillance – when SA had to turn to the International Monetary Fund to borrow money to deal with the economic collapse caused by irrational blocking of Covid-19 “. BM / DM
