Government has drastically reduced its exposure to South African Airways (SAA) from R19.1bn to R91m and will no longer offer financial support to the airline.
Vukile Davidson, chief director financial markets at the National Treasury, said a lot of work had gone into reducing the amount government is liable for in relation to commitments to creditors and to those who held tickets before the airline went into business rescue in 2021.
They are now working with local creditors to convert the remaining letters of credit into bank guarantees.
“A couple of years ago the exposure was R19.1bn, but work has been done and now it’s sitting at R91m related to un-flown ticket liabilities and letters of credit. We are working with the airline and local lenders to convert those into bank guarantees so that government can no longer have exposure to the airline.”
He said SAA had developed a strategy linked to the sale of a 51% stake to the Takatso Consortium, which would have come with a R3bn injection. That strategy had to be revised when the Takatso deal fell through. As a result, the national carrier will be slowing down its aggressive route expansion which would have required a huge capital investment. It opened new routes after emerging from business rescue, including Perth in Australia and Sao Paulo, Brazil.
Davidson said the National Treasury has told the airline that no more bailouts will be coming their way.
“We have communicated to the airline that we do not anticipate that any additional form of government support will come to (them) whether in the form of direct fiscal allocations or any additional guarantees,” he said.
The auditor-general revealed in parliament that government had advanced R38.1bn in bailouts to SAA since 2018. But it has since adopted a tough stance against ailing SOEs and instead of bailing them out without conditions attached, it is now linking financial support to strong turnaround plans that will see these companies weaned off government support and operating strictly off their balance sheets.
Meanwhile, a cautious Treasury revised GDP growth downwards in the midterm budget as it sought to avoid a situation where much less money ends up being collected when projected higher economic growth does not materialise.
Growth for 2024 was revised down to 1.1% instead of the 1.3% projected in the February budget.
GDP growth is expected to average 1.8% over the next three years.
Director-general Duncan Pieterse told reporters shortly before the presentation of the medium-term budget policy statement (MTBPS) in parliament that the problem they encountered was having to revise optimistic revenue collection targets each cycle when expected economic growth turned out to be lower than forecast.
“The problems with forecasts that are too optimistic is that they then lead to tax bases that are too optimistic, revenue numbers that are too optimistic, and a situation where you are then making allocation decisions against revenue that does not materialise.
“You are putting yourself in a difficult position if you overestimate growth and then make the wrong allocation decisions against that,” Pieterse said.
With tax revenue down by R22.3bn owing to lower fuel levy collections and slower VAT collections on imports, government will over the next three years hold firm on fiscal consolidation.
This entails stabilising debt which will peak at R6-trillion or 75.5% of GDP by 2025/26; narrowing the budget deficit (the gap between revenue and spending) from 4.7% in 2024/25 to 3.4% in 2027/28; reducing the public sector wage bill and limiting financial support to state-owned companies.
The Treasury has set aside R11bn for the next two fiscal years to encourage older civil servants in non-critical skills jobs to take up early retirement in a bid to curtail government’s high wage bill.
It also aims to arrest growth in debt service costs that now account for 22c of every rand spent.
Asked if South Africa would take advice from the International Monetary Fund to set a debt ceiling of 75%, finance minister Enoch Godongwana acknowledged that allowing debt to surpass this threshold would make it difficult for the country to continue meeting its debt obligations.
“What guides us is not necessarily what the IMF says. What guides us is our own capacity to service our own debt. Because of the growth levels we have, higher than 75% debt is going to be difficult for us to service,” he said.
The MTBPS noted an improvement in economic conditions in the second half of the year including the suspension of load-shedding, structural reforms of Operation Vulindlela — a partnership between the Treasury and the presidency to unlock red tape — taking hold, global inflation receding and the rand strengthening.
“The economy has since strengthened in response to the suspension of power cuts since March 2024, improved confidence following the formation of the government of national unity in June, better-than-expected inflation outcomes in recent months and reduced borrowing costs. All these factors are expected to continue supporting the economy over the period ahead,” the MBTPS said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.