Bailouts of SOEs cannot continue, says Tito Mboweni
'Additional government support cannot be a blank cheque to these SOEs. We really and truly cannot go on like this.'
Finance minister Tito Mboweni on Thursday said government will soon cut support to struggling state-owned enterprises (SOEs), in what could be seen as a first step towards privatisation.
Ratings agencies have cited SOEs, including Eskom and SAA, which carry debt approaching R700bn, among the major risks to the sustainability of the country’s finances.
Power utility Eskom, which supplies virtually all of SA’s power, is hamstrung by a staggering debt of R440bn, maintenance issues and design flaws at its new coal power stations, Medupi and Kusile.
It had to resort to stage-four load shedding in March as it could not meet the demand for electricity.
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In his state of the nation address in June, President Cyril Ramaphosa said Eskom would receive a larger portion of the R230bn support promised in February’s budget sooner to alleviate its financial crisis.
During the Treasury’s budget vote debate in parliament on Thursday evening, Mboweni said that once the annual Appropriation Bill, before parliament, was enacted, additional financial support would be provided to SOEs, such as SAA, the SABC and Denel, from the contingency reserve.
“But I must emphasise that this additional government support cannot be a blank cheque to these SOEs. We really and truly cannot go on like this.”
He said a broad strategic framework in the form of a green paper, which would culminate in a white paper, would soon be published. This, Mboweni said, would deal with the future that government expected SOEs to play in a fastchanging micro-and macroeconomic environment.
“In some cases, such as in aviation and in broadcasting, various companies are making profits and providing good quality service. Yet SOEs in the same sectors, operating under the same economic conditions, are relying on government bailouts.
We cannot allow this to continue,” Mboweni said.
He said SA’s current economic performance would have a substantial effect on fiscal stability, requiring tougher and strategic choices. “Tax collection is underperforming in a weak economic environment, with a revenue shortfall in 2018/19 of R57bn compared to 2018’s budget estimates.
“Meanwhile, debt service costs have increased and persistently poor economic growth further exposes us to the risk of the re-pricing of our debt. At the time of the budget, debt as a percentage of GDP was projected to reach 60.2% in 2023/2024, but this was based on growth estimates that are now less likely to be achieved.
“Therefore, we will be focusing our efforts in the short term on addressing the issue of rising debt, and on stricter controls of the spending side of government finances.”
The total allocation to the Treasury in the current financial year is R30.8bn. Mboweni said the allocation would allow the Treasury to conduct research on the economy together with its partners in and outside of government, and develop policies to maintain fiscal stability and promote growth.
“Together with the South African Reserve Bank, the National Treasury also ensures the stability of the banking sector and the overall financial system,” he said, adding that government needed to continuously promote policy certainty, resolve the SOE challenges to restore fiscal sustainability and ensure security and reliability of electricity supply, among other goals.
“Given the high risks to the economy of a systemic failure if Eskom were to collapse, government is urgently working on stabilising the utility, while developing a broad strategy for its future,” Mboweni said.